10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 28, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36161

THE CONTAINER STORE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-0565401
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 Freeport Parkway, Coppell, TX	75019
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (972) 538-6000

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TCS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐
Smaller reporting company ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑

The registrant had 49,368,117 shares of its common stock outstanding as of January 31, 2020.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of December 28, 2019, March 30, 2019, and December 29, 2018	3
	Unaudited Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks ended December 28, 2019 and December 29, 2018	5
	Unaudited Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-Nine Weeks ended December 28, 2019 and December 29, 2018	6
	Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Weeks ended December 28, 2019 and December 29, 2018	7
	Unaudited Consolidated Statements of Shareholders’ Equity for the Thirteen and Thirty-Nine Weeks ended December 28, 2019 and December 29, 2018	8
	Notes to the Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Default Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

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PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

The Container Store Group, Inc.

Consolidated balance sheets

	December 28,		March 30,		December 29,
(In thousands)	2019		2019		2018
Assets	(unaudited)				(unaudited)
Current assets:
Cash	$	13,971	$	7,364	$	20,969
Accounts receivable, net		29,438		25,568		29,549
Inventory		139,579		108,650		116,006
Prepaid expenses		10,435		10,078		8,877
Income taxes receivable		1,205		1,003		640
Other current assets		11,633		11,705		10,404
Total current assets		206,261		164,368		186,445
Noncurrent assets:
Property and equipment, net		153,515		152,588		151,860
Noncurrent operating lease assets		350,922		—		—
Goodwill		202,815		202,815		202,815
Trade names		224,956		225,150		226,996
Deferred financing costs, net		188		241		259
Noncurrent deferred tax assets, net		1,835		1,912		1,898
Other assets		1,790		1,670		1,749
Total noncurrent assets		936,021		584,376		585,577
Total assets	$	1,142,282	$	748,744	$	772,022

See accompanying notes.

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The Container Store Group, Inc.

Consolidated balance sheets (continued)

	December 28,		March 30,		December 29,
(In thousands, except share and per share amounts)	2019		2019		2018
Liabilities and shareholders’ equity	(unaudited)				(unaudited)
Current liabilities:
Accounts payable	$	56,231	$	58,734	$	59,571
Accrued liabilities		67,658		67,163		67,775
Revolving lines of credit		—		5,511		—
Current portion of long-term debt		6,953		7,016		7,018
Current operating lease liabilities		63,163		—		—
Income taxes payable		2,504		2,851		1,589
Total current liabilities		196,509		141,275		135,953
Noncurrent liabilities:
Long-term debt		298,758		254,960		297,895
Noncurrent operating lease liabilities		320,536		—		—
Noncurrent deferred tax liabilities, net		48,363		51,702		50,397
Other long-term liabilities		9,947		36,114		36,339
Total noncurrent liabilities		677,604		342,776		384,631
Total liabilities		874,113		484,051		520,584
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 48,316,559 shares issued at December 28, 2019; 48,142,319 shares issued at March 30, 2019; 48,142,319 shares issued at December 29, 2018		483		481		481
Additional paid-in capital		866,132		863,978		863,119
Accumulated other comprehensive loss		(26,771)		(26,132)		(22,646)
Retained deficit		(571,675)		(573,634)		(589,516)
Total shareholders’ equity		268,169		264,693		251,438
Total liabilities and shareholders’ equity	$	1,142,282	$	748,744	$	772,022

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of operations

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
(In thousands, except share and per share amounts) (unaudited)	2019		2018		2019		2018
Net sales	$	228,657	$	221,637	$	674,609	$	641,913
Cost of sales (excluding depreciation and amortization)		94,292		91,580		283,633		266,510
Gross profit		134,365		130,057		390,976		375,403
Selling, general, and administrative expenses (excluding depreciation and amortization)		111,972		108,688		334,281		320,949
Stock-based compensation		799		632		2,575		1,987
Pre-opening costs		2,482		691		5,988		1,918
Depreciation and amortization		9,689		8,887		28,137		27,352
Other (income) expenses		(1)		80		375		297
Gain on disposal of assets		(8)		(324)		(12)		(284)
Income from operations		9,432		11,403		19,632		23,184
Interest expense, net		5,134		6,008		16,245		21,293
Loss on extinguishment of debt		—		—		—		2,082
Income (loss) before taxes		4,298		5,395		3,387		(191)
Provision (benefit) for income taxes		1,886		(3,926)		1,428		(5,989)
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Net income per common share — basic and diluted	$	0.05	$	0.19	$	0.04	$	0.12
Weighted-average common shares — basic		48,313,671		48,139,582		48,987,525		48,139,132
Weighted-average common shares — diluted		48,370,418		48,381,455		49,172,633		48,407,337

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of comprehensive income

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
(In thousands) (unaudited)	2019		2018		2019		2018
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Unrealized gain (loss) on financial instruments, net of tax provision (benefit) of $846,  $216,  ($154) and ($196)		2,414		660		(515)		(687)
Pension liability adjustment, net of $0		(111)		(3)		12		132
Foreign currency translation adjustment		3,321		(136)		(136)		(4,775)
Comprehensive income	$	8,036	$	9,842	$	1,320	$	468

See accompanying notes.

6

The Container Store Group, Inc.

Consolidated statements of cash flows

	Thirty-Nine Weeks Ended
	December 28,		December 29,
(In thousands) (unaudited)	2019		2018
Operating activities
Net income	$	1,959	$	5,798
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		28,137		27,352
Stock-based compensation		2,575		1,987
Gain on disposal of assets		(12)		(284)
Loss on extinguishment of debt		—		2,082
Deferred tax benefit		(5,023)		(3,959)
Non-cash interest		1,396		1,886
Other		187		(35)
Changes in operating assets and liabilities:
Accounts receivable		(4,149)		(4,655)
Inventory		(32,127)		(22,013)
Prepaid expenses and other assets		1,216		4,853
Accounts payable and accrued liabilities		3,630		13,475
Net change in lease assets and liabilities		245		—
Income taxes		(547)		(3,564)
Other noncurrent liabilities		1,377		(5,100)
Net cash (used in) provided by operating activities		(1,136)		17,823
Investing activities
Additions to property and equipment		(29,296)		(21,328)
Proceeds from sale of property and equipment		12		915
Net cash used in investing activities		(29,284)		(20,413)
Financing activities
Borrowings on revolving lines of credit		51,335		40,256
Payments on revolving lines of credit		(56,700)		(40,256)
Borrowings on long-term debt		65,000		326,500
Payments on long-term debt		(22,512)		(308,251)
Payment of debt issuance costs		—		(2,384)
Payment of taxes with shares withheld upon restricted stock vesting		(372)		(128)
Net cash provided by financing activities		36,751		15,737
Effect of exchange rate changes on cash		276		(577)
Net increase in cash		6,607		12,570
Cash at beginning of fiscal period		7,364		8,399
Cash at end of fiscal period	$	13,971	$	20,969
Supplemental information for non-cash investing and financing activities:
Purchases of property and equipment (included in accounts payable)	$	970	$	2,619

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of shareholders’ equity

								Accumulated
						Additional		other				Total
(In thousands, except share amounts)	Par		Common stock			paid-in		comprehensive		Retained		shareholders’
(unaudited)	value		Shares	Amount		capital		(loss) income		deficit		equity
Balance at March 30, 2019	$	0.01	48,142,319	$	481	$	863,978	$	(26,132)	$	(573,634)	$	264,693
Net loss			—		—		—		—		(4,099)		(4,099)
Stock-based compensation			—		—		811		—		—		811
Vesting of restricted stock awards			140,878		2		(56)		—		—		(54)
Taxes related to net share settlement of restricted stock awards			—		—		(347)		—		—		(347)
Foreign currency translation adjustment			—		—		—		333		—		333
Unrealized gain on financial instruments, net of ($18) tax benefit			—		—		—		(128)		—		(128)
Pension liability adjustment, net of $0			—		—		—		(2)		—		(2)
Balance at June 29, 2019	$	0.01	48,283,197		483		864,386		(25,929)		(577,733)		261,207
Net income			—		—		—		—		3,646		3,646
Stock-based compensation			—		—		965		—		—		965
Vesting of restricted stock awards			23,215		—		4		—		—		4
Taxes related to net share settlement of restricted stock awards			—		—		(8)		—		—		(8)
Foreign currency translation adjustment			—		—		—		(3,790)		—		(3,790)
Unrealized gain on financial instruments, net of $(981) tax benefit			—		—		—		(2,801)		—		(2,801)
Pension liability adjustment, net of $0			—		—		—		125		—		125
Balance at September 28, 2019	$	0.01	48,306,412		483		865,347		(32,395)		(574,087)		259,348
Net income			—		—		—		—		2,412		2,412
Stock-based compensation			—		—		799		—		—		799
Vesting of restricted stock awards			10,147		—		—		—		—		—
Taxes related to net share settlement of restricted stock awards			—		—		(14)		—		—		(14)
Foreign currency translation adjustment			—		—		—		3,321		—		3,321
Unrealized gain on financial instruments, net of $846 tax provision			—		—		—		2,414		—		2,414
Pension liability adjustment, net of $0			—		—		—		(111)		—		(111)
Balance at December 28, 2019	$	0.01	48,316,559		483		866,132		(26,771)		(571,675)		268,169

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of shareholders’ equity (continued)

								Accumulated
						Additional		other				Total
(In thousands, except share amounts)	Par		Common stock			paid-in		comprehensive		Retained		shareholders’
(unaudited)	value		Shares	Amount		capital		(loss) income		deficit		equity
Balance at March 31, 2018	$	0.01	48,072,187	$	481	$	861,263	$	(17,316)	$	(595,721)	$	248,707
Net loss			—		—		—		—		(6,764)		(6,764)
Stock-based compensation			—		—		586		—		—		586
Vesting of restricted stock awards			66,720		—		(1)		—		—		(1)
Taxes related to net share settlement of restricted stock awards			—		—		(122)		—		—		(122)
Cumulative adjustment for adoption of ASC 606			—		—		—		—		407		407
Foreign currency translation adjustment			—		—		—		(5,291)		—		(5,291)
Unrealized gain on financial instruments, net of ($566) tax benefit			—		—		—		(1,785)		—		(1,785)
Pension liability adjustment, net of $0			—		—		—		153		—		153
Balance at June 30, 2018	$	0.01	48,138,907		481		861,726		(24,239)		(602,078)		235,890
Net income			—		—		—		—		3,241		3,241
Stock-based compensation			—		—		769		—		—		769
Foreign currency translation adjustment			—		—		—		652		—		652
Unrealized gain on financial instruments, net of $154 tax provision			—		—		—		438		—		438
Pension liability adjustment, net of $0			—		—		—		(18)		—		(18)
Balance at September 29, 2018	$	0.01	48,138,907	$	481	$	862,495	$	(23,167)	$	(598,837)	$	240,972
Net income			—		—		—		—		9,321		9,321
Stock-based compensation			—		—		631		—		—		631
Vesting of restricted stock awards			3,412		—		—		—		—		—
Taxes related to net share settlement of restricted stock awards			—		—		(7)		—		—		(7)
Foreign currency translation adjustment			—		—		—		(136)		—		(136)
Unrealized gain on financial instruments, net of $216 tax provision			—		—		—		660		—		660
Pension liability adjustment, net of $0			—		—		—		(3)		—		(3)
Balance at December 29, 2018	$	0.01	48,142,319	$	481	$	863,119	$	(22,646)	$	(589,516)	$	251,438

See accompanying notes.

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The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

December 28, 2019

1. Description of business and basis of presentation

These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the Securities and Exchange Commission (“SEC”) on May 30, 2019 (the “2018 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements, with the exception of lease accounting as discussed further below. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

All references herein to “fiscal 2019” refer to the 52-week fiscal year ending March 28, 2020, “fiscal 2018” refer to the 52-week fiscal year ended March 30, 2019, and “fiscal 2017” refer to the 52-week fiscal year ended March 31, 2018.

Description of business

The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”).  On November 6, 2013, the Company completed its initial public offering (the “IPO”).  As the majority shareholder, LGP retains a controlling interest in the Company.  As of December 28, 2019, The Container Store, Inc. (“TCS”) operates 93 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers (including business customers), through its website and call center. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors.  elfa® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirty-nine weeks ended December 28, 2019 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of Our Annual elfa® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to revise lease accounting guidance. The update requires most leases to be recorded on the balance sheet as a lease liability, with a corresponding right-of-use asset, whereas these leases previously had an off-balance sheet classification. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients; however, the Company did not elect the hindsight practical expedient. Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $352,059 at transition. However,

10

the adoption of this standard did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows. See Note 3 for further discussion on leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which is intended to improve and simplify hedge accounting and improve the disclosures of hedging arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, the guidance on share-based payments to nonemployees would be aligned with the requirements for share-based payments granted to employees, with certain exceptions. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In July 2016, the FASB issued ASU 2016-13, Financial Instruments –  Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).  This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement are not affected by the new guidance. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

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2.  Detail of certain balance sheet accounts

	December 28,		March 30,		December 29,
	2019		2019		2018
Accounts receivable, net:
Trade receivables, net	$	17,127	$	16,730	$	15,150
Credit card receivables		10,718		7,244		10,407
Other receivables		1,593		1,594		3,992
	$	29,438	$	25,568	$	29,549
Inventory:
Finished goods	$	134,487	$	103,774	$	110,769
Raw materials		4,490		4,282		4,762
Work in progress		602		594		475
	$	139,579	$	108,650	$	116,006
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	22,270	$	19,771	$	21,406
Unearned revenue		13,579		10,744		10,941
Accrued transaction and property tax		12,348		12,249		9,767
Gift cards and store credits outstanding		10,180		8,777		9,562
Accrued lease liabilities		—		4,882		4,793
Accrued interest		1,540		209		1,844
Other accrued liabilities		7,741		10,531		9,462
	$	67,658	$	67,163	$	67,775

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets provided above. Unearned revenue was $10,744 as of March 30, 2019, and $10,382 was subsequently recognized into revenue for the thirty-nine weeks ended December 28, 2019.  Gift cards and store credits outstanding was $8,777 as of March 30, 2019, and $2,523 was subsequently recognized into revenue for the thirty-nine weeks ended December 28, 2019. See Note 10 for disaggregated revenue disclosures.

3. Leases

We conduct all of our U.S. operations from leased facilities that include corporate headquarters, warehouse facilities, and 93 store locations. The corporate headquarters, warehouse facilities, and stores are under operating leases that generally expire over the next 1 to 20 years. We also lease computer hardware under operating leases that generally expire over the next few years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company also has finance leases at our Elfa segment which are immaterial.

Lease expense on operating leases is recorded on a straight‑line basis over the term of the lease, commencing on the date the Company takes possession of the leased property and is recorded in selling, general and administrative expenses (“SG&A”).

We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable lease payments include lease payments that are based on a percentage of sales.

Upon lease commencement, we recognize the lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the

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lease liability include the discount rate applied to present value the future lease payments and the exercise of renewal options.

Many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.

Discount Rate

Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.

The components of lease costs for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Operating lease costs	$	22,842	$	67,840
Variable lease costs		270		903
Total lease costs	$	23,112	$	68,743

We do not have sublease income and do not recognize lease assets or liabilities for short-term leases, defined as operating leases with initial terms of less than 12 months. Our short-term lease costs were not material for the thirty-nine weeks ended December 28, 2019.

Supplemental cash flow information related to our leases for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Cash paid for amounts included in the measurement of operating lease liabilities	$	22,800	$	67,321
Additions to right-of-use assets	$	2,842	$	41,976

Weighted average remaining operating lease term and incremental borrowing rate as of December 28, 2019 were as follows:

Weighted average remaining lease term (years)	7.2
Weighted average incremental borrowing rate	8.8	%

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As of December 28, 2019, future minimum lease payments under our operating lease liabilities were as follows:

	Operating leases (1)
Within 1 year (remaining)	$	23,280
2 years		92,567
3 years		79,184
4 years		68,985
5 years		61,050
Thereafter		201,683
Total lease payments	$	526,749
Less amount representing interest		(143,050)
Total lease liability	$	383,699
Less current lease liability		(63,163)
Total noncurrent lease liability	$	320,536

(1) Operating lease payments exclude $12,201 of legally binding minimum lease payments for leases signed but not yet commenced.

4.  Net income per common share

Basic net income per common share is computed as net income divided by the weighted-average number of common shares for the period. Net income per common share – diluted is computed as net income divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of net income per common share – diluted if their effect is anti-dilutive.

The following is a reconciliation of net income and the number of shares used in the basic and diluted net income per common share calculations:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Numerator:
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Denominator:
Weighted-average common shares — basic		48,313,671		48,139,582		48,987,525		48,139,132
Options and other dilutive securities		56,747		241,873		185,108		268,205
Weighted-average common shares — diluted		48,370,418		48,381,455		49,172,633		48,407,337
Net income per common share — basic and diluted	$	0.05	$	0.19	$	0.04	$	0.12
Antidilutive securities not included:
Stock options outstanding		2,527,745		2,408,068		2,364,692		2,450,246
Nonvested restricted stock awards		310,422		148,310		164,556		29,251

5.  Income taxes

The provision for income taxes in the thirteen weeks ended December 28, 2019 was $1,886 as compared to a benefit of $3,926 in the thirteen weeks ended December 29, 2018. The effective tax rate for the thirteen weeks ended December 28, 2019 was 43.9%, as compared to -72.8% in the thirteen weeks ended December 29, 2018. During the thirteen weeks ended December 28, 2019, the effective tax rate rose above the U.S. statutory rate of 21% primarily due to tax related to stock-based compensation, U.S. state income taxes, and the impact of the global intangible low-taxed income (“GILTI”) provision.  During the thirteen weeks ended December 29, 2018, the effective tax rate fell below the U.S. statutory rate

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primarily due to the finalization of the one-time transition tax on foreign earnings related to the Tax Act enacted in fiscal 2017.

The provision for income taxes in the thirty-nine weeks ended December 28, 2019 was $1,428 as compared to a benefit of $5,989 in the thirty-nine weeks ended December 29, 2018. The effective tax rate for the thirty-nine weeks ended December 28, 2019 was 42.2%, as compared to 3135.6% in the thirty-nine weeks ended December 29, 2018. During the thirty-nine weeks ended December 28, 2019, the effective tax rate rose above the U.S. statutory rate of 21% primarily due to tax related to stock-based compensation, U.S. state income taxes, and the impact of the GILTI provision. During the thirty-nine weeks ended December 29, 2018, the effective tax rate rose above the U.S. statutory rate due to the finalization of the one-time transition tax on foreign earnings and other Tax Act items, and recognition of a $604 tax benefit for the remeasurement of deferred tax balances as a result of a change in the Swedish tax rate, combined with a year-to-date pre-tax loss.

6.  Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $4,276 as of December 28, 2019.

The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows on an individual basis or in the aggregate.

7.  Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirty-nine weeks ended December 28, 2019:

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at March 30, 2019	$	(967)	$	(1,833)	$	(23,332)	$	(26,132)
Other comprehensive (loss) income before reclassifications, net of tax		(1,425)		12		(136)		(1,549)
Amounts reclassified to earnings, net of tax		910		—		—		910
Net current period other comprehensive (loss) income		(515)		12		(136)		(639)
Balance at December 28, 2019	$	(1,482)	$	(1,821)	$	(23,468)	$	(26,771)

Amounts reclassified from AOCL to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Company’s consolidated statements of operations. For a description of the Company’s use of foreign currency forward contracts, refer to Note 8.

8.  Foreign currency forward contracts

The Company’s international operations and purchases of inventory products from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. In the TCS segment, we utilize foreign currency forward contracts in Swedish krona to stabilize our retail gross margins and to protect our domestic operations from downward currency exposure by hedging purchases of inventory from our wholly-owned subsidiary, Elfa. Forward contracts in the TCS segment are designated as cash flow hedges, as defined by ASC 815. In the Elfa segment, we utilize foreign currency forward contracts to hedge purchases, primarily of raw materials, that are transacted in currencies other than Swedish krona, which is the functional currency of Elfa. Forward contracts in the Elfa segment are economic hedges and are not designated as cash flow hedges as defined by ASC 815.

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During the thirty-nine weeks ended December 28, 2019 and December 29, 2018, the TCS segment used forward contracts for 87% and 97% of inventory purchases in Swedish krona, respectively. Generally, the Company’s foreign currency forward contracts have terms from 1 to 24 months and require the Company to exchange currencies at agreed-upon rates at settlement.

The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its foreign currency forward contracts on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure.

The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. The Company accounts for its foreign currency hedging instruments in the TCS segment as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedging instruments that are considered to be effective, as defined, are recorded in other comprehensive (loss) income until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instrument’s fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency hedge instruments and determined the foreign currency hedge instruments were highly effective during the thirty-nine weeks ended December 28, 2019 and December 29, 2018. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as SG&A on the consolidated statements of operations; however, during the thirty-nine weeks ended December 28, 2019, the Company did not recognize any amount associated with the change in fair value of forward contracts not designated as hedging instruments, as the Company had none of these instruments outstanding.

The Company had a $1,482 loss in accumulated other comprehensive loss related to foreign currency hedge instruments at December 28, 2019, of which $1,040 represents an unrealized loss for settled foreign currency hedge instruments related to inventory on hand as of December 28, 2019. The Company expects the unrealized loss of $1,040, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end customer.

The change in fair value of the Company’s foreign currency hedge instruments that qualify as cash flow hedges and are included in accumulated other comprehensive loss, net of taxes, are presented in Note 7 of these financial statements.

9.  Fair value measurements

Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:

· Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

· Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

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As of December 28, 2019, March 30, 2019 and December 29, 2018, the Company held certain items that are required to be measured at fair value on a recurring basis. These included the nonqualified retirement plan, which consists of investments purchased by employee contributions to retirement savings accounts. The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.

The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements:

			December 28,		March 30,		December 29,
Description		Balance Sheet Location	2019		2019		2018
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,249	$	5,810	$	5,156
Foreign currency forward contracts	Level 2	Other current assets		—		—		35
Total assets			$	6,249	$	5,810	$	5,191

The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (Level 2 valuations). As of December 28, 2019, March 30, 2019 and December 29, 2018, the estimated fair value of the Company’s long-term debt, including current maturities, was $299,579, $274,753, and $292,961, respectively.

10.  Segment reporting

The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business.

The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance.

Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

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Thirteen Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	211,971	$	16,686	$	—	$	228,657
Intersegment sales		—		21,385		(21,385)		—
Adjusted EBITDA		17,924		6,118		(2,035)		22,007
Interest expense, net		5,056		78		—		5,134
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirteen Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	204,899	$	16,738	$	—	$	221,637
Intersegment sales		—		22,369		(22,369)		—
Adjusted EBITDA		19,014		4,994		(2,192)		21,816
Interest expense, net		5,957		51		—		6,008
Assets (1)		671,865		105,491		(5,334)		772,022

Thirty-Nine Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	628,282	$	46,327	$	—	$	674,609
Intersegment sales		—		53,800		(53,800)		—
Adjusted EBITDA		46,820		14,155		(5,899)		55,076
Interest expense, net		15,960		285		—		16,245
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirty-Nine Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	593,896	$	48,017	$	—	$	641,913
Intersegment sales		—		47,414		(47,414)		—
Adjusted EBITDA		50,345		10,432		(2,223)		58,554
Interest expense, net		21,097		196		—		21,293
Assets (1)		671,865		105,491		(5,334)		772,022

(1) Tangible assets in the Elfa column are located outside of the United States.

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A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
		2019		2018	2019		2018
Income (loss) before taxes	$	4,298	$	5,395	$	3,387	$	(191)
Add:
Depreciation and amortization		9,689		8,887		28,137		27,352
Interest expense, net		5,134		6,008		16,245		21,293
Pre-opening costs (a)		2,482		691		5,988		1,918
Non-cash lease expense (b)		(355)		101		(1,532)		(1,117)
Stock-based compensation (c)		799		632		2,575		1,987
Loss on extinguishment of debt (d)		—		—		—		2,082
Foreign exchange (gains) losses (e)		(37)		22		(98)		69
Optimization Plan implementation charges (f)		—		—		—		4,864
Elfa France closure (g)		(1)		—		402		—
Other adjustments (h)		(2)		80		(28)		297
Adjusted EBITDA	$	22,007	$	21,816	$	55,076	$	58,554

(a) Non-capital expenditures associated with opening new stores, relocating stores, and net costs associated with opening the second distribution center, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. In the thirteen and thirty-nine weeks ended December 28, 2019, lease expenses associated with the opening of the second distribution center were excluded from Non-cash lease expense and included in Pre-opening costs.

(c) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(d) Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in September 2018, which we do not consider in our evaluation of our ongoing operations.

(e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(f) Charges incurred to implement our four-part optimization plan to drive improved sales and profitability, launched during fiscal 2017 (the “Optimization Plan”), which include certain consulting costs recorded in SG&A in the first quarter of fiscal 2018, which we do not consider in our evaluation of ongoing performance.

(g) Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

(h) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary note regarding forward-looking statements

This report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements included in this Quarterly Report, including without limitation statements regarding expectations for our business, anticipated financial performance and liquidity, anticipated capital expenditures and interest expense, and expectations regarding our second distribution center, are only predictions and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These include, but are not limited to: a decline in the health of the economy and the purchase of discretionary items; risks related to a security breach or cyber-attack of our website or information technology systems, and other damage to such systems; effects of competition on our business; the risk that our operating and financial performance in a given period will not meet the guidance we provided to the public; the risk that significant business initiatives may not be successful; our inability to source and market our products to meet customer preferences or inability to offer customers an aesthetically pleasing shopping environment; risks related to our indebtedness; our inability to effectively manage online sales; our dependence primarily on a single distribution center for all of our stores; risks related to opening a second distribution center; risks related to our reliance on independent third-party transportation providers for substantially all of our product shipments; risks associated with our dependence on foreign imports; material damage to or interruptions in our information technology systems; our inability to lease space on favorable terms; the vulnerability of our facilities and systems to natural disasters and other unexpected events; our reliance on third-party web service providers; our failure to successfully anticipate consumer demand and manage inventory commensurate with demand; our ability to control increasing costs, including fluctuations in currency exchange rates and rising health care and labor costs; risks related to new store openings; our dependence on our brand image and any inability to protect our brand; our failure to effectively manage our growth; risks related to our inability to obtain capital on satisfactory terms or at all; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; our inability to obtain merchandise from our vendors on a timely basis and at competitive prices; the risk that our vendors may sell their products to our competitors; our dependence on key executive management, and the transition in our executive leadership; our inability to find, train and retain key personnel; labor activities and unrest; risks related to violations of anti-bribery and anti-kickback laws; risks related to our fixed lease obligations; risks related to litigation; product recalls and/or product liability and changes in product safety and consumer protection laws; changes in statutory, regulatory, accounting and other legal requirements; risks related to changes in estimates or projections used to assess the fair value of our intangible assets; fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets; impacts to our business as a result of the Tax Cuts and Jobs Act; seasonal fluctuations in our operating results; material disruptions in one of our Elfa manufacturing facilities; our inability to protect our intellectual property rights and claims that we have infringed third parties’ intellectual property rights; risks related to our status as a controlled company; significant fluctuations in the price of our common stock; substantial future sales of our common stock, or the perception that such sales may occur, which could depress the price of our common stock; risks related to being a public company; anti-takeover provisions in our governing documents, which could delay or prevent a change in control; and our failure to establish and maintain effective internal controls. Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect our operating results and financial condition are described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the Securities and Exchange Commission (the “SEC”) on May 30, 2019.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future

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events. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein after the date of this report, whether as a result of any new information, future events or otherwise.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” and “our” refer to The Container Store Group, Inc. and, where appropriate, its subsidiaries.

We follow a 4-4-5 fiscal calendar, whereby each fiscal quarter consists of thirteen weeks grouped into two four-week “months” and one five-week “month”, and our fiscal year is the 52- or 53-week period ending on the Saturday closest to March 31. Fiscal 2019 ends on March 28, 2020 and fiscal 2018 ended on March 30, 2019. The third quarter of fiscal 2019 ended on December 28, 2019 and the third quarter of fiscal 2018 ended on December 29, 2018, and both included thirteen weeks.

Overview

The Container Store® is the original and leading specialty retailer of storage and organization products and solutions in the United States and the only national retailer solely devoted to the category. We provide a collection of creative, multifunctional and customizable storage and organization solutions that are sold in our stores and online through a high-service, differentiated shopping experience. We feature The Container Store Custom Closets consisting of our elfa® Classic, elfa® Décor, Avera™ and Laren™ closet lines. Our vision is to be a beloved brand and the first choice for customized organization solutions and services. Our customers are highly educated, very busy and primarily homeowners with a higher than average household income. We service them with storage and organization solutions that help them accomplish projects, maximize their space, and make the most of their home.    

Our operations consist of two operating segments:

The Container Store (“TCS”), which consists of our retail stores, website and call center (which includes business sales), as well as our installation and organizational services business. As of December 28, 2019, we operated 93 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 states and the District of Columbia. We offer our customers their choice of how to shop—in-store, online or through our in-home services. Our stores receive substantially all of our products directly from our distribution center co-located with our corporate headquarters and call center in Coppell, Texas and we have opened a second distribution center in Aberdeen, Maryland, which is expected to be fully operational in late fiscal 2019.

Elfa, The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. Elfa was founded in 1948 and is headquartered in Malmö, Sweden. Elfa’s shelving and drawer systems are customizable for any area of the home, including closets, kitchens, offices and garages. Elfa operates three manufacturing facilities with two located in Sweden and one in Poland. The Container Store began selling elfa® products in 1978 and acquired Elfa in 1999. Today our TCS segment is the exclusive distributor of elfa® products in the U.S. Elfa also sells its products on a wholesale basis to various retailers in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

Note on Dollar Amounts

All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands, except per share amounts and unless otherwise stated.

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Results of Operations

The following data represents the amounts shown in our unaudited consolidated statements of operations expressed in dollars and as a percentage of net sales and operating data for the periods presented. For segment data, see Note 10 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Net sales	$	228,657	$	221,637	$	674,609	$	641,913
Cost of sales (excluding depreciation and amortization)		94,292		91,580		283,633		266,510
Gross profit		134,365		130,057		390,976		375,403
Selling, general, and administrative expenses (excluding depreciation and amortization)		111,972		108,688		334,281		320,949
Stock-based compensation		799		632		2,575		1,987
Pre-opening costs		2,482		691		5,988		1,918
Depreciation and amortization		9,689		8,887		28,137		27,352
Other (income) expenses		(1)		80		375		297
Gain on disposal of assets		(8)		(324)		(12)		(284)
Income from operations		9,432		11,403		19,632		23,184
Interest expense, net		5,134		6,008		16,245		21,293
Loss on extinguishment of debt		—		—		—		2,082
Income (loss) before taxes		4,298		5,395		3,387		(191)
Provision (benefit) for income taxes		1,886		(3,926)		1,428		(5,989)
Net income	$	2,412	$	9,321	$	1,959	$	5,798

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	December 28,			December 29,			December 28,			December 29,
	2019			2018			2019			2018
Percentage of net sales:
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales (excluding depreciation and amortization)		41.2	%		41.3	%		42.0	%		41.5	%
Gross profit		58.8	%		58.7	%		58.0	%		58.5	%
Selling, general, and administrative expenses (excluding depreciation and amortization)		49.0	%		49.0	%		49.6	%		50.0	%
Stock‑based compensation		0.3	%		0.3	%		0.4	%		0.3	%
Pre‑opening costs		1.1	%		0.3	%		0.9	%		0.3	%
Depreciation and amortization		4.2	%		4.0	%		4.2	%		4.3	%
Other (income) expenses		(0.0)	%		0.0	%		0.1	%		0.0	%
Gain on disposal of assets		(0.0)	%		(0.1)	%		(0.0)	%		(0.0)	%
Income from operations		4.1	%		5.1	%		2.9	%		3.6	%
Interest expense, net		2.2	%		2.7	%		2.4	%		3.3	%
Loss on extinguishment of debt		—	%		—	%		—	%		0.3	%
Income (loss) before taxes		1.9	%		2.4	%		0.5	%		(0.0)	%
Provision (benefit) for income taxes		0.8	%		(1.8)	%		0.2	%		(0.9)	%
Net income		1.1	%		4.2	%		0.3	%		0.9	%
Operating data:
Comparable store sales growth for the period (1)		3.0	%		(0.8)	%		5.3	%		1.5	%
Number of stores open at end of period		93			92			93			92
Non‑GAAP measures (2):
Adjusted EBITDA (3)	$	22,007		$	21,816		$	55,076		$	58,554
Adjusted net income (4)	$	2,411		$	3,543		$	2,249		$	4,279
Adjusted net income per common share — diluted (4)	$	0.05		$	0.07		$	0.05		$	0.09

(1) A store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store’s opening. Comparable store sales reflect the point at which merchandise and service orders are fulfilled and delivered to customers, excluding shipping and delivery, and are net of discounts and returns. When a

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store is relocated, we continue to consider net sales from that store to be comparable store sales. A store temporarily closed for more than seven days is not considered comparable in the fiscal month it is closed. The store then becomes comparable on the first day of the following fiscal month in which it reopens. Net sales from our website and call center (which includes business sales) are also included in calculations of comparable store sales.

(2) We have presented EBITDA, Adjusted EBITDA, adjusted net income, and adjusted net income per common share – diluted as supplemental measures of financial performance that are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). These non-GAAP measures should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. These non-GAAP measures are key metrics used by management, our board of directors, and Leonard Green and Partners, L.P. (“LGP”) to assess our financial performance. We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.  These non-GAAP measures are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of these non-GAAP measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using non-GAAP measures supplementally. Our non-GAAP measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation. Please refer to footnotes (3) and (4) of this table for further information regarding why we believe each non-GAAP measure provides useful information to investors regarding our financial condition and results of operations, as well as the additional purposes for which management uses each non-GAAP financial measure.

Additionally, this Management’s Discussion and Analysis also refers to Elfa third-party net sales after the conversion of Elfa’s net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate. The Company believes the disclosure of Elfa third-party net sales without the effects of currency exchange rate fluctuations helps investors understand the Company’s underlying performance.

(3) EBITDA and Adjusted EBITDA have been presented in this Quarterly Report on Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with our Secured Term Loan Facility (as defined below) and the Revolving Credit Facility (as defined below) and is one of the components for performance evaluation under our executive compensation programs. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance from period to period as discussed further below.

EBITDA and Adjusted EBITDA are included in this Quarterly Report on Form 10-Q because they are key metrics used by management, our board of directors and LGP to assess our financial performance. In addition, we use Adjusted EBITDA in connection with covenant compliance and executive performance evaluations, and we use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We believe it is useful for investors to see the measures that management uses to evaluate the Company, its executives and our covenant compliance, as applicable. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

EBITDA and Adjusted EBITDA are not GAAP measures of our financial performance or liquidity and should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally,

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EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures, store openings and certain other cash costs that may recur in the future. EBITDA and Adjusted EBITDA contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as pre-opening costs and stock compensation expense. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using EBITDA and Adjusted EBITDA supplementally. Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Depreciation and amortization		9,689		8,887		28,137		27,352
Interest expense, net		5,134		6,008		16,245		21,293
Income tax provision (benefit)		1,886		(3,926)		1,428		(5,989)
EBITDA		19,121		20,290		47,769		48,454
Pre-opening costs (a)		2,482		691		5,988		1,918
Non-cash lease expense (b)		(355)		101		(1,532)		(1,117)
Stock-based compensation (c)		799		632		2,575		1,987
Loss on extinguishment of debt (d)		—		—		—		2,082
Foreign exchange (gains) losses (e)		(37)		22		(98)		69
Optimization Plan implementation charges (f)		—		—		—		4,864
Elfa France closure (g)		(1)		—		402		—
Other adjustments (h)		(2)		80		(28)		297
Adjusted EBITDA	$	22,007	$	21,816	$	55,076	$	58,554

(a) Non-capital expenditures associated with opening new stores, relocating stores and net costs associated with opening the second distribution center, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. In the thirteen and thirty-nine weeks ended December 28, 2019, lease expenses associated with the opening of the second distribution center were excluded from Non-cash lease expense and included in Pre-opening costs.

(c) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(d) Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in September 2018, which we do not consider in our evaluation of our ongoing operations.

(e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(f) Charges incurred to implement our four-part optimization plan to drive improved sales and profitability, launched during fiscal 2017 (the “Optimization Plan”), which include certain consulting costs recorded in selling, general and

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administrative expenses (“SG&A”) in the first quarter of fiscal 2018, which we do not consider in our evaluation of ongoing performance.

(g) Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

(h) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

(4) Adjusted net income and adjusted net income per common share – diluted have been presented in this Quarterly Report on Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define adjusted net income as net income  before restructuring charges, loss on extinguishment of debt, certain gains on disposal of assets, certain management transition costs incurred and benefits realized, charges incurred as part of the implementation of our Optimization Plan, charges associated with an Elfa manufacturing facility closure, charges related to the closure of Elfa France operations, and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net income per common share – diluted as adjusted net income divided by the diluted weighted average common shares outstanding. We use adjusted net income and adjusted net income per common share – diluted to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We present adjusted net income and adjusted net income per common share – diluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.

A reconciliation of the GAAP financial measures of net income and net income per common share – diluted to the non-GAAP financial measures of adjusted net income and adjusted net income per common share – diluted is set forth below:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Numerator:
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Loss on extinguishment of debt (a)		—		—		—		2,082
Elfa France closure (b)		(1)		—		402		—
Gain on disposal of real estate (c)		—		(387)		—		(387)
Optimization Plan implementation charges (d)		—		—		—		4,864
Taxes (e)		—		(5,391)		(112)		(8,078)
Adjusted net income	$	2,411	$	3,543	$	2,249	$	4,279
Denominator:
Weighted-average common shares outstanding — diluted		48,370,418		48,381,455		49,172,633		48,407,337
Net income per common share — diluted	$	0.05	$	0.19	$	0.04	$	0.12
Adjusted net income per common share — diluted	$	0.05	$	0.07	$	0.05	$	0.09

(a) Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in September 2018, which we do not consider in our evaluation of our ongoing operations.

(b) Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

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(c) Gain recorded as a result of the sale of a building in Lahti, Finland in fiscal 2018, recorded in gain on disposal of assets, which we do not consider in our evaluation of our ongoing operations.

(d) Charges incurred to implement our Optimization Plan, which include certain consulting costs recorded in SG&A in the first quarter of fiscal 2018, which we do not consider in our evaluation of ongoing performance.

(e) Tax impact of adjustments to net income, the tax impact related to the closure of Elfa France operations in the second quarter of fiscal 2019, the tax benefit recorded in the first quarter of fiscal 2018 as a result of a reduction in the Swedish tax rate, and the tax benefit recorded in the third quarter of fiscal 2018 as a result of the finalization of the impact of the Tax Cuts and Jobs Act, which are considered to be unusual or infrequent tax items, all of which we do not consider in our evaluation of ongoing performance.

Thirteen Weeks Ended December 28, 2019 Compared to Thirteen Weeks Ended December 29, 2018

Net sales

The following table summarizes our net sales for each of the thirteen weeks ended December 28, 2019 and December 29, 2018:

	December 28, 2019		% total		December 29, 2018		% total
TCS net sales	$	211,971	92.7	%	$	204,899	92.4	%
Elfa third party net sales		16,686	7.3	%		16,738	7.6	%
Net sales	$	228,657	100.0	%	$	221,637	100.0	%

Net sales in the thirteen weeks ended December 28, 2019 increased by $7,020, or 3.2%, compared to the thirteen weeks ended December 29, 2018. This increase was comprised of the following components:

	Net sales
Net sales for the thirteen weeks ended December 29, 2018	$	221,637
Incremental net sales increase (decrease) due to:
Comparable stores (including a $4,314, or 22.6%, increase in online sales)		6,119
New stores		879
Elfa third party net sales (excluding impact of foreign currency translation)		1,011
Impact of foreign currency translation on Elfa third party net sales		(1,063)
Shipping and delivery		74
Net sales for the thirteen weeks ended December 28, 2019	$	228,657

In the thirteen weeks ended December 28, 2019, comparable stores generated a $6,119, or 3.0% increase in net sales, with Customs Closets contributing 420 basis points of the increase and all other departments negatively contributing 120 basis points. Additionally, new stores generated $879 of incremental net sales. Elfa third party net sales decreased $52 in the thirteen weeks ended December 28, 2019. After converting Elfa’s third party net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate for both the thirteen weeks ended December 28, 2019 and the thirteen weeks ended December 29, 2018, Elfa third party net sales increased $1,011.

Gross profit and gross margin

Gross profit in the thirteen weeks ended December 28, 2019 increased by $4,308, or 3.3%, compared to the thirteen weeks ended December 29, 2018.  The increase in gross profit was primarily the result of increased consolidated net sales and consolidated gross margin. The following table summarizes the gross margin for the thirteen weeks ended

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December 28, 2019 and December 29, 2018 by segment and total. The segment gross margins include the impact of inter-segment net sales from the Elfa segment to the TCS segment:

	December 28, 2019		December 29, 2018
TCS gross margin	57.6	%	58.4	%
Elfa gross margin	37.7	%	32.4	%
Total gross margin	58.8	%	58.7	%

TCS gross margin decreased 80 basis points primarily due to successful marketing and merchandising campaigns that drove a higher mix of lower margin service sales, partially offset by an improvement in foreign currency. Elfa gross margin increased 530 basis points primarily due to lower direct material costs and production efficiencies. In total, gross margin increased 10 basis points primarily due to the improvements in Elfa’s gross margin during the thirteen weeks ended December 28, 2019.

Selling, general and administrative expenses

Selling, general and administrative expenses in the thirteen weeks ended December 28, 2019 increased by $3,284, or 3.0%, compared to the thirteen weeks ended December 29, 2018. As a percentage of consolidated net sales, SG&A was flat as compared to the thirteen weeks ended December 29, 2018. The following table summarizes SG&A as a percentage of consolidated net sales for the thirteen weeks ended December 28, 2019 and December 29, 2018:

	December 28, 2019		December 29, 2018
	% of Net sales		% of Net sales
TCS selling, general and administrative	45.4	%	45.4	%
Elfa selling, general and administrative	3.6	%	3.6	%
Total selling, general and administrative	49.0	%	49.0	%

TCS selling, general and administrative expenses as a percentage of consolidated net sales was flat primarily due to incremental Custom Closets marketing expenses, offset by leverage of fixed payroll and occupancy costs due to higher sales.  

Pre-opening costs

Pre-opening costs increased to $2,482 in the third quarter of fiscal 2019 as compared to $691 in the third quarter of fiscal 2018. The increase is primarily due to $2,182 of net costs associated with the opening of the second distribution center. The company opened one relocation store in the third quarter of fiscal 2019 as compared to opening two relocation stores in the third quarter of fiscal 2018.

Interest expense

Interest expense decreased by $874, or 14.5%, in the thirteen weeks ended December 28, 2019 to $5,134, as compared to $6,008 in the thirteen weeks ended December 29, 2018.  This decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility. 

Taxes

The provision for income taxes in the thirteen weeks ended December 28, 2019 was $1,886 as compared to a benefit of $3,926 in the thirteen weeks ended December 29, 2018. The effective tax rate for the thirteen weeks ended December 28, 2019 was 43.9%, as compared to -72.8% in the thirteen weeks ended December 29, 2018. The increase in the effective tax rate is primarily due to the benefit of the finalization of the one-time transition tax on foreign earnings in the third quarter of fiscal 2018.

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Thirty-Nine Weeks Ended December 28, 2019 Compared to Thirty-Nine Weeks Ended December 29, 2018

Net sales

The following table summarizes our net sales for each of the thirty-nine weeks ended December 28, 2019 and December 29, 2018:

	December 28, 2019		% total		December 29, 2018		% total
TCS net sales	$	628,282	93.1	%	$	593,896	92.5	%
Elfa third party net sales		46,327	6.9	%		48,017	7.5	%
Net sales	$	674,609	100.0	%	$	641,913	100.0	%

Net sales in the thirty-nine weeks ended December 28, 2019 increased by $32,696, or 5.1%, compared to the thirty-nine weeks ended December 29, 2018. This increase was comprised of the following components:

	Net sales
Net sales for the thirty-nine weeks ended December 29, 2018	$	641,913
Incremental net sales increase (decrease) due to:
Comparable stores (including a $13,099, or 23.2%, increase in online sales)		31,069
New stores		2,535
Elfa third party net sales (excluding impact of foreign currency translation)		1,760
Impact of foreign currency translation on Elfa third party net sales		(3,449)
Shipping and delivery		781
Net sales for the thirty-nine weeks ended December 28, 2019	$	674,609

In the thirty-nine weeks ended December 28, 2019, comparable stores generated a $31,069, or 5.3% increase in net sales, with Customs Closets contributing 440 basis points of the increase and all other departments contributing 90 basis points. Additionally, new stores generated $2,535 of incremental net sales. Elfa third party net sales decreased $1,689 in the thirty-nine weeks ended December 28, 2019, due to the negative impact of foreign currency translation. After converting Elfa’s third party net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate for both the thirty-nine weeks ended December 28, 2019 and thirty-nine weeks ended December 29, 2018, Elfa third party net sales increased $1,760.

Gross profit and gross margin

Gross profit in the thirty-nine weeks ended December 28, 2019 increased by $15,573, or 4.1%, compared to the thirty-nine weeks ended December 29, 2018.  The increase in gross profit was primarily the result of increased consolidated net sales, partially offset by a decrease in consolidated gross margin. The following table summarizes the gross margin for the thirty-nine weeks ended December 28, 2019 and December 29, 2018 by segment and total. The segment gross margins include the impact of inter-segment net sales from the Elfa segment to the TCS segment:

	December 28, 2019		December 29, 2018
TCS gross margin	57.3	%	58.0	%
Elfa gross margin	36.7	%	34.5	%
Total gross margin	58.0	%	58.5	%

TCS gross margin decreased 70 basis points primarily due to successful marketing and merchandising campaigns that drove a higher mix of lower margin service sales, partially offset by an improvement in foreign currency. Elfa gross margin increased 220 basis points primarily due to production efficiencies and lower direct materials costs. In total, gross margin decreased 50 basis points primarily due to the decline in TCS’s gross margin during the thirty-nine weeks ended December 28, 2019.

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Selling, general and administrative expenses

Selling, general and administrative expenses in the thirty-nine weeks ended December 28, 2019 increased by $13,332, or 4.2%, compared to the thirty-nine weeks ended December 29, 2018. As a percentage of consolidated net sales, SG&A decreased by 40 basis points. The following table summarizes SG&A as a percentage of consolidated net sales for the thirty-nine weeks ended December 28, 2019 and December 29, 2018:

	December 28, 2019		December 29, 2018
	% of Net sales		% of Net sales
TCS selling, general and administrative	46.2	%	46.4	%
Elfa selling, general and administrative	3.4	%	3.6	%
Total selling, general and administrative	49.6	%	50.0	%

TCS selling, general and administrative expenses decreased by 20 basis points as a percentage of consolidated net sales. This was primarily due to Optimization Plan expenses incurred in the thirty-nine weeks ended December 29, 2018, partially offset by incremental Custom Closets marketing expenses incurred in the thirty-nine weeks ended December 28, 2019.Elfa selling, general and administrative expenses decreased by 20 basis points as a percentage of consolidated net sales, primarily due to ongoing savings and efficiency efforts.

Pre-opening costs

Pre-opening costs increased to $5,988 in the thirty-nine weeks ended December 28, 2019 as compared to $1,918 in the thirty-nine weeks ended December 29, 2018. The increase is primarily due to $5,030 of net costs associated with the opening of the second distribution center. The Company opened two new stores, including one relocation, in the thirty-nine weeks ended December 28, 2019 as compared to opening four new stores, including two relocations, in the thirty-nine weeks ended December 29, 2018.

Interest expense

Interest expense decreased by $5,048, or 23.7%, in the thirty-nine weeks ended December 28, 2019 to $16,245, as compared to $21,293 in the thirty-nine weeks ended December 29, 2018. This decrease is primarily due to lower interest rates on the Senior Secured Term Loan Facility.

Taxes

The provision for income taxes in the thirty-nine weeks ended December 28, 2019 was $1,428 as compared to a benefit of $5,989 in the thirty-nine weeks ended December 29, 2018. The effective tax rate for the thirty-nine weeks ended December 28, 2019 was 42.2%, as compared to 3135.6% in the thirty-nine weeks ended December 29, 2018. The decrease in the effective tax rate is primarily due to the benefit of the remeasurement of deferred tax balances in the first quarter of fiscal 2018 as a result of a change in the Swedish tax rate and the benefit of the finalization of the one-time transition tax on foreign earnings in the third quarter of fiscal 2018.

Liquidity and Capital Resources

We have relied on cash flows from operations, a $100,000 asset-based revolving credit agreement (the “Revolving Credit Facility” as further discussed under “Revolving Credit Facility” below), and the 2019 Elfa Senior Secured Credit Facilities (as defined below) as our primary sources of liquidity. Our primary cash needs are for merchandise inventories, direct materials, payroll, store leases, capital expenditures associated with opening new stores and updating existing stores, as well as information technology and infrastructure, including building our second distribution center, and Elfa manufacturing facility enhancements. The most significant components of our operating assets and liabilities are merchandise inventories, accounts receivable, prepaid expenses and other assets, accounts payable, operating lease assets and liabilities, other current and noncurrent liabilities, taxes receivable and taxes payable. Our liquidity fluctuates as a result of our building inventory for key selling periods, and as a result, our borrowings are generally higher during

29

these periods when compared to the rest of our fiscal year. Our borrowings generally increase in our second and third fiscal quarters as we prepare for Our Annual Shelving Sale, the holiday season, and Our Annual elfa® Sale. We believe that cash expected to be generated from operations and the availability of borrowings under the Revolving Credit Facility and the 2019 Elfa Senior Secured Credit Facilities will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our existing credit facilities for at least the next 12 months. In the future, we may seek to raise additional capital, which could be in the form of loans, bonds, convertible debt or equity, to fund our operations and capital expenditures. There can be no assurance that we will be able to raise additional capital on favorable terms or at all.

At December 28, 2019, we had $13,971 of cash, of which $5,935 was held by our foreign subsidiaries. In addition, we had $38,352 of additional availability under the Revolving Credit Facility and approximately $11,774 of additional availability under the 2019 Elfa Revolving Credit Facility (as defined below) as of December 28, 2019.  There were $4,276 in letters of credit outstanding under the Revolving Credit Facility and other contracts at that date.

Cash flow analysis

A summary of our key components and measures of liquidity are shown in the following table:

	Thirty-Nine Weeks Ended
	December 28,		December 29,
	2019		2018
Net cash (used in) provided by operating activities	$	(1,136)	$	17,823
Net cash used in investing activities		(29,284)		(20,413)
Net cash provided by financing activities		36,751		15,737
Effect of exchange rate changes on cash		276		(577)
Net increase in cash	$	6,607	$	12,570
Free cash flow (Non-GAAP) (1)	$	(30,432)	$	(3,505)

(1) See below for a discussion of this non-GAAP financial measure and reconciliation to its most directly comparable GAAP financial measure.

Net cash (used in) provided by operating activities

Cash from operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, and deferred taxes as well as the effect of changes in operating assets and liabilities.

Net cash used in operating activities was $1,136 for the thirty-nine weeks ended December 28, 2019.  Non-cash items of $27,260 and net income of $1,959 were more than offset by a net change in operating assets and liabilities of $30,355. The net change in operating assets and liabilities is primarily due to an increase in merchandise inventory, combined with an increase in accounts receivable, partially offset by an increase in accounts payable and accrued liabilities. The increase in merchandise inventory is primarily due to inventory build-up related to the second distribution center and new product introductions. The increase in accounts receivable is primarily due to the seasonality of sales. The increase in accounts payable and accrued liabilities is primarily driven by timing of inventory receipts and payments.

Net cash provided by operating activities was $17,823 for the thirty-nine weeks ended December 29, 2018. Non-cash items of $29,029 and net income of $5,798 were partially offset by a net change in operating assets and liabilities of $17,004. The net change in operating assets and liabilities is primarily due to an increase in merchandise inventory, partially offset by an increase in accounts payable and accrued liabilities during the thirty-nine weeks ended December 29, 2018.

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Net cash used in investing activities

Investing activities consist primarily of capital expenditures for new store openings, existing store remodels, infrastructure, information systems, and our distribution centers.

Our total capital expenditures for the thirty-nine weeks ended December 28, 2019 were $29,296. We incurred capital expenditures of $13,434 related to the opening of the second distribution center in Aberdeen, Maryland, which is expected to be fully operational in late fiscal 2019. We incurred $9,249 of capital expenditures for new store openings, relocations and existing store remodels. We opened two new stores, including one relocation, during the thirty-nine weeks ended December 28, 2019. The remaining capital expenditures of $6,613 were primarily for investments in information technology and new product rollouts. 

Our total capital expenditures for the thirty-nine weeks ended December 29, 2018 were $21,328 with new store openings, relocations and existing store remodels accounting for less than half of spending at $8,703. We opened four stores, including two relocations, during the thirty-nine weeks ended December 29, 2018. We incurred $5,674 of capital expenditures for distribution centers, the majority of which is related to the second distribution center. The remaining capital expenditures of $6,951 were primarily for investments in information technology and new product rollouts. We recorded proceeds from the sale of property, plant and equipment of $915, the majority of which is related to a sale of a building in Lahti, Finland in the third quarter of fiscal 2018.

Net cash provided by financing activities

Financing activities consist primarily of borrowings and payments under the Senior Secured Term Loan Facility, the Revolving Credit Facility, and the 2019 Elfa Senior Secured Credit Facilities.

Net cash provided by financing activities was $36,751 for the thirty-nine weeks ended December 28, 2019. This included net proceeds of $46,000 from borrowings under the Revolving Credit Facility, partially offset by net repayments of $5,365 for the 2019 Elfa Senior Secured Credit Facilities, payments of $3,512 for repayment of long-term indebtedness, and $372 for taxes paid with the withholding of shares upon vesting of restricted stock awards.

Net cash provided by financing activities was $15,737 for the thirty-nine weeks ended December 29, 2018. This included net proceeds of $42,000 from borrowings under the Revolving Credit Facility, partially offset by net payments of $23,751 for repayment of long-term indebtedness, debt issuance costs of $2,384, and $128 for taxes paid with the withholding of shares upon vesting of restricted stock awards.

As of December 28, 2019, TCS had a total of $38,352 of unused borrowing availability under the Revolving Credit Facility, and $58,000 of borrowings outstanding under the Revolving Credit Facility.

As of December 28, 2019, Elfa had a total of $11,774 of unused borrowing availability under the 2019 Elfa Revolving Credit Facility and no borrowings outstanding under the 2019 Elfa Senior Secured Credit Facilities.

Free cash flow (Non-GAAP)

We present free cash flow, which we define as net cash (used in) provided by operating activities in a period minus payments for property and equipment made in that period, because we believe it is a useful indicator of the Company’s overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for debt repayment, investment, and other discretionary and non-discretionary cash uses. Accordingly, we believe that free cash flow provides useful information to investors in understanding and evaluating our liquidity in the same manner as management. Our definition of free cash flow is limited in that it does not solely represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Consolidated Statements of Cash Flows. Although other companies report their free cash flow, numerous methods may exist for calculating a company’s free cash flow. As a result, the method used by our

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management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.

Our free cash flow fluctuates as a result of seasonality of net sales, building inventory for key selling periods, and timing of investments in new store openings, existing store remodels, infrastructure, information systems, and our distribution centers, among other things. Historically, our free cash flow has been lower in the first half of the fiscal year, due to lower net sales, operating income, and cash flows from operations, and as such, is not necessarily indicative of the free cash flow for the full year. Our free cash flow of -$30,432 for the thirty-nine weeks ended December 28, 2019 has decreased as compared to -$3,505 for the thirty-nine weeks ended December 29, 2018, due to significant investments in our second distribution center during the thirty-nine weeks ended December 28, 2019. We do expect our free cash flow to increase in fiscal 2020 as our significant investments for the opening of the second distribution center are expected to be completed once it is fully operational.

The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash (used in) provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow:

	Thirty-Nine Weeks Ended
	December 28,		December 29,
	2019		2018
Net cash (used in) provided by operating activities	$	(1,136)	$	17,823
Less: Additions to property and equipment		(29,296)		(21,328)
Free cash flow	$	(30,432)	$	(3,505)

Senior Secured Term Loan Facility

On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of our domestic subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the lenders party thereto (the “Senior Secured Term Loan Facility”). On September 14, 2018 (the “Effective Date”), the Company entered into a Fifth Amendment to the Senior Secured Term Loan Facility. The Fifth Amendment amended the Senior Secured Term Loan Facility to, among other things, (i) extend the maturity date of the loans under the Senior Secured Term Loan Facility to September 14, 2023, (ii) decrease the applicable interest rate margin to 5.00% for LIBOR loans and 4.00% for base rate loans and, beginning from the date that a compliance certificate is delivered to the administrative agent for the fiscal year ended March 30, 2019, allow the applicable interest rate margin to step down to 4.75% for LIBOR loans and 3.75% for base rate loans upon achievement of a consolidated leverage ratio equal to or less than 2.75:1.00, and (iii) impose a 1.00% premium if a voluntary prepayment is made from the proceeds of a repricing transaction within 12 months after the Effective Date.

In connection with the Fifth Amendment, we repaid $20,000 of the outstanding loans under the Senior Secured Term Loan Facility, which reduced the aggregate principal amount of the Senior Secured Term Loan Facility to $272,500.  We drew down a net amount of approximately $10,000 on the Revolving Credit Facility in connection with the closing of the Fifth Amendment. As of December 28, 2019, the aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was $253,985  and the interest rate on such borrowings is LIBOR +5.00%, subject to a LIBOR floor of 1.00%. The Senior Secured Term Loan Facility provides that we are required to make quarterly principal repayments of $1,703 through June 30, 2023, with a balloon payment for the remaining balance due on September 14, 2023.

The Senior Secured Term Loan Facility is secured by (a) a first priority security interest in substantially all of our assets (excluding stock in foreign subsidiaries in excess of 65%, assets of non-guarantors and subject to certain other exceptions) (other than the collateral that secures the Revolving Credit Facility described below on a first-priority basis) and (b) a second priority security interest in the assets securing the Revolving Credit Facility described below on a first-priority basis. Obligations under the Senior Secured Term Loan Facility are guaranteed by The Container Store Group, Inc. and each of The Container Store, Inc.’s U.S. subsidiaries. The Senior Secured Term Loan Facility contains a number of covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional

32

debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves, engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the financing agreements contain certain cross-default provisions and also require certain mandatory prepayments of the Senior Secured Term Loan Facility, among these an Excess Cash Flow (as such term is defined in the Senior Secured Term Loan Facility) requirement. As of December 28, 2019, we were in compliance with all covenants under the Senior Secured Term Loan Facility and no Event of Default (as such term is defined in the Senior Secured Term Loan Facility) had occurred.

Revolving Credit Facility

On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of our domestic subsidiaries entered into an asset-based revolving credit agreement with the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Wells Fargo Bank, National Association, as Syndication Agent (as amended, the “Revolving Credit Facility”). The maturity date of the loans under the Revolving Credit Facility is August 18, 2022.

The aggregate principal amount of the facility is $100,000.  Borrowings under the Revolving Credit Facility accrue interest at LIBOR+1.25%. In addition, the Revolving Credit Facility includes an uncommitted incremental revolving facility in the amount of $50,000, which is subject to receipt of lender commitments and satisfaction of specified conditions.

The Revolving Credit Facility provides that proceeds are to be used for working capital and other general corporate purposes, and allows for swing line advances of up to $15,000 and the issuance of letters of credit of up to $40,000.

The availability of credit at any given time under the Revolving Credit Facility is limited by reference to a borrowing base formula based upon numerous factors, including the value of eligible inventory, eligible accounts receivable, and reserves established by the administrative agent. As a result of the borrowing base formula, the actual borrowing availability under the Revolving Credit Facility could be less than the stated amount of the Revolving Credit Facility (as reduced by the actual borrowings and outstanding letters of credit under the Revolving Credit Facility).

The Revolving Credit Facility is secured by (a) a first-priority security interest in substantially all of our personal property, consisting of inventory, accounts receivable, cash, deposit accounts, and other general intangibles, and (b) a second-priority security interest in the collateral that secures the Senior Secured Term Loan Facility on a first-priority basis, as described above (excluding stock in foreign subsidiaries in excess of 65%, and assets of non-guarantor subsidiaries and subject to certain other exceptions). Obligations under the Revolving Credit Facility are guaranteed by The Container Store Group, Inc. and each of The Container Store, Inc.’s U.S. subsidiaries.

The Revolving Credit Facility contains a number of covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves, engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the financing agreements contain certain cross-default provisions. We are required to maintain a consolidated fixed-charge coverage ratio of 1.0 to 1.0 if excess availability is less than $10,000 at any time. As of December 28, 2019, we were in compliance with all covenants under the Revolving Credit Facility and no Event of Default (as such term is defined in the Revolving Credit Facility) had occurred.

2019 Elfa Senior Secured Credit Facilities

On March 18, 2019, Elfa refinanced  its master credit agreement with Nordea Bank AB entered into on April 1, 2014 and the senior secured credit facilities thereunder, and entered into a new master credit agreement with Nordea Bank Abp, filial i Sverige (“Nordea Bank”), which consists of (i) an SEK 110.0 million (approximately $11,774 as of December 28, 2019) revolving credit facility (the “2019 Original Revolving Facility”), (ii) upon Elfa’s request, an additional SEK 115.0 million (approximately $12,309 as of December 28, 2019) revolving credit facility (the “2019 Additional Revolving Facility” and together with the 2019 Original Revolving Facility, the “2019 Elfa Revolving Facilities”), and

33

(iii) an uncommitted term loan facility in the amount of SEK 25.0 million (approximately $2,676 as of December 28, 2019), which is subject to receipt of Nordea Bank’s commitment and satisfaction of specified conditions (the “Incremental Term Facility”, together with the 2019 Elfa Revolving Facilities, the “2019 Elfa Senior Secured Credit Facilities”). The term for the 2019 Elfa Senior Secured Credit Facilities began on April 1, 2019 and matures on April 1, 2024. Loans borrowed under the 2019 Elfa Revolving Facilities bear interest at Nordea Bank’s base rate +1.40%. Any loan borrowed under the Incremental Term Facility would bear interest at Stibor +1.70%.

The 2019 Elfa Senior Secured Credit Facilities are secured by the majority of assets of Elfa. The 2019 Elfa Senior Secured Credit Facilities contains a number of covenants that, among other things, restrict Elfa’s ability, subject to specified exceptions, to incur additional liens, sell or dispose of assets, merge with other companies, engage in businesses that are not in a related line of business and make guarantees. In addition, Elfa is required to maintain (i) a Group Equity Ratio (as defined in the 2019 Elfa Senior Secured Credit Facilities) of not less than 32.5% and (ii) a consolidated ratio of net debt to EBITDA (as defined in the 2019 Elfa Senior Secured Credit Facilities) of less than 3.20.  As of December 28, 2019, Elfa was in compliance with all covenants under the 2019 Elfa Senior Secured Credit Facilities and no Event of Default (as defined in the 2019 Elfa Senior Secured Credit Facilities) had occurred.

Critical accounting policies and estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. A summary of our significant accounting policies is included in Note 1 to our annual consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 30, 2019.

Certain of our accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of our consolidated financial statements and require significant, difficult, or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 30, 2019. As of December 28, 2019, there were no significant changes to any of our critical accounting policies and estimates, with the exception of the adoption of ASU 2016-02, Leases, which is updated below.

Leases

We recognize a lease liability upon lease commencement, measured at the present value of the fixed future minimum lease payments over the lease term. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Lease expense on operating leases is recorded on a straight-line basis over the term of the lease and is recorded in SG&A.

Key assumptions and judgments included in the determination of the lease liability include the discount rate applied to the present value of the future lease payments, and the exercise of renewal options. Our leases do not provide information about the rate implicit in the lease; therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment. Additionally, many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.  

For further discussion about leases see Note 1 and Note 3 in the Notes to consolidated financial statements.

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Contractual obligations

There have been no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 30, 2019, other than those which occur in the normal course of business.

Off-Balance Sheet Arrangements

There have been no material changes to our off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 30, 2019.

Recent Accounting Pronouncements

Please refer to Note 1 of our unaudited consolidated financial statements for a summary of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk profile as of  December 28, 2019 has not materially changed since March 30, 2019. Our market risk profile as of March 30, 2019 is disclosed in our Annual Report on Form 10-K filed with the SEC on May 30, 2019. See Note 8 of Notes to our unaudited consolidated financial statements included in Part I, Item 1, of this Form 10-Q, for disclosures on our foreign currency forward contracts.

ITEM 4. CONTROLS AND PROCEDURES

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 28, 2019.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 28, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims, including employment claims, wage and hour claims, intellectual property claims, contractual and commercial disputes and other matters that arise in the ordinary course of business. While the outcome of these and other claims cannot be predicted with certainty, management does not believe that the outcome of these matters will have a material adverse effect on our business, results of operations or financial condition on an individual basis or in the aggregate.

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the SEC on May 30, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed/ Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation of The Container Store Group, Inc.	10-Q	001-36161	3.1	1/10/14
3.2	Amended and Restated Bylaws of The Container Store Group, Inc.	10-Q	001-36161	3.2	1/10/14
10.1	Fifth Amended and Restated Employment Agreement, dated November 5, 2019, between Melissa Reiff and The Container Store Group, Inc.					*
10.2	Second Amended and Restated Employment Agreement, dated November 5, 2019, between Jodi Taylor and The Container Store Group, Inc.					*
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)					*
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)					*
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350					**
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350					**
101.INS	XBRL Instance Document					*
101.SCH	XBRL Taxonomy Extension Schema Document					*
101.CAL	XBRL Taxonomy Calculation Linkbase Document					*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					*

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101.PRE XBRL Taxonomy Extension Presentation *

*     Filed herewith.

**   Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Container Store Group, Inc.

(Registrant)

Date:   February 5, 2020	\s\ Jodi L. Taylor
	Jodi L. Taylor
Chief Financial Officer and Chief Administrative Officer (duly authorized officer and Principal Financial Officer)

Date:   February 5, 2020	\s\ Jeffrey A. Miller
	Jeffrey A. Miller
Chief Accounting Officer (Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

FIFTH AMENDED AND RESTATED Employment Agreement

This Fifth Amended and Restated Employment Agreement (the “Agreement”) is entered into on and effective as of November 5, 2019 (the “Effective Date”), by and between Melissa Reiff  (the “Executive”) and The Container Store Group, Inc. (formerly known as TCS Holdings, Inc.), a Delaware corporation (“Parent”), and any of its subsidiaries and affiliates as may employ the Executive from time to time (collectively, and together with any successor thereto, the “Company”).

RECITALS

WHEREAS, the Company and the Executive are currently parties to that certain Fourth Amended and Restated Employment Agreement, entered into on and effective as of January 22, 2019 (the “Prior Agreement”);

WHEREAS, the Company desires to assure itself of the continued services of the Executive by engaging the Executive to perform services on the terms and subject to the conditions set out in this Agreement;

WHEREAS, the Executive desires to provide services to the Company on the terms and subject to the conditions set out in this Agreement; and

WHEREAS, the Company and the Executive desire to enter into this Agreement and this Agreement shall supersede the Prior Agreement;

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE I.

DefinED TERMS

1.1 Previously Defined Terms.  As used herein, each term defined in the first paragraph and recitals of this Agreement shall have the meaning set forth above.

1.2 Definitions.  As used herein, the following terms shall have the following respective meanings:

(a) “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. As used in the preceding sentence, “control” has the meaning given such term under Rule 405 of the Securities Act of 1933, as amended.

(b) “Annual Base Salary” has the meaning set forth in Section 3.1.  

(c) “Annual Bonus” has the meaning set forth in Section 3.2.

US-DOCS\111566278.1

(d) “Board” means the Board of Directors of the Parent.

(e) The Company shall have “Cause” to terminate the Executive’s employment hereunder upon the occurrence of any one or more of the following events:  (i) a material breach by the Executive of any material provision of this Agreement which is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such breach, to the extent such breach is capable of cure; (ii) the Executive’s conviction of, or entry by the Executive of a guilty or nolo contendere plea to, the commission of a felony or a crime involving moral turpitude, other than vicarious liability or traffic violations; (iii) the Executive’s intentional breach of Company policies constituting theft or embezzlement from the Company or any of its customers or suppliers; or (iv) the Executive’s gross neglect or intentional misconduct in connection with the performance of any material portion of the Executive’s duties (which, in the case of the Executive’s gross neglect, is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such neglect, to the extent that such neglect is capable of cure).

(f) “Change in Control”  has the meaning set forth in the Company’s Amended and Restated 2013 Incentive Award Plan,  provided that such event also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

(g) “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the second (2nd)  anniversary of such Change in Control.

(h) “Company Chairperson Period” has the meaning set forth in Section 2.4.

(i) “Compensation Committee” means the Compensation Committee of the Board.

(j) “Competitive Business” has the meaning set forth in Section 6.1.

(k) “Continuation Period” has the meaning set forth in Section 5.2.

(l) “Date of Termination” means: (i) if the Executive’s employment is terminated by her death, the date of her death; (ii) if the Executive’s employment is terminated pursuant to Sections 4.1(b)–(f), either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 4.2, whichever is earlier; or (iii) if the Executive’s employment is terminated due to the expiration of the Term under Section 2.2, the date of expiration of the then-current Term.

(m) “Disability” means the Executive’s incapacity to perform the essential duties of her position for any six (6) months (whether or not consecutive) during any twelve (12) month period due to the Executive’s physical or mental illness, as determined by a physician mutually acceptable to, and agreed to in good faith by, a majority of the Board and the Executive.

(n) “Elfa Chairperson Period” has the meaning set forth in Section 2.4.

(o) “Equity Award” has the meaning set forth in Section 4.3.

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US-DOCS\111566278.1

(p) “Fiscal Year” means the fiscal year of the Company, as in effect from time to time.

(q) The Executive shall have “Good Reason” to resign from her employment hereunder upon the occurrence of any one or more of the following events without her prior written consent:  (i) an adverse change in the Executive’s title or reporting line or the Executive’s material duties, authorities or responsibilities; (ii) the assignment to the Executive of duties materially inconsistent with her position; (iii) a material breach by the Company of any material provision of this Agreement; (iv) a reduction of the Executive’s Annual Base Salary or benefits hereunder (other than any such reduction by no more than 10% of the Executive’s Annual Base Salary which is part of, and generally consistent with, a general reduction affecting other similarly situated executives of the Company) or Annual Bonus opportunity (it being understood that the Performance Targets shall be determined annually by the Board); (v) failure of the Company to pay any portion of the Annual Base Salary or Annual Bonus otherwise payable to the Executive or to provide the benefits set forth in Section 3.4 (other than as provided in clause (iv) above); or (vi) the Company’s requiring the Executive to be headquartered at any office or location more than fifty (50) miles from Coppell, Texas, except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations; provided,  however, that notwithstanding any of the foregoing the Executive may not resign from her employment for Good Reason unless: (A) the Executive provides the Company with at least sixty (60) days prior written Notice of Termination of her intent to resign for Good Reason and (B) the Company has not corrected the circumstances constituting Good Reason prior to the Date of Termination specified in the Notice of Termination;  provided that such Notice of Termination may not be given later than ninety (90) days after the initial occurrence of the event constituting Good Reason.

(r) “Health Gross-Up Payment” means an additional amount equal to the federal, state and local income and payroll taxes that the Executive incurs on each monthly Health Payment. 

(s) “Health Payment” means the monthly premium amount paid by the Executive pursuant to Section 5.2. 

(t) “Notice of Termination” has the meaning set forth in Section 4.2.  

(u) “Performance Target” has the meaning set forth in Section 3.2.

(v) “Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

(w) “Post-Expiration Continuation Period” has the meaning set forth in Section 5.3.

(x) “Proprietary Information” has the meaning set forth in Section 7.1.

(y) “Restricted Period” has the meaning set forth in Section 6.1.

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US-DOCS\111566278.1

(z) “Section 409A” means Section 409A of the United States Internal Revenue Code of 1986, as amended, and the Department of Treasury regulations and other interpretive guidance issued with respect thereto.

(aa) “Term” has the meaning set forth in Section 2.2.

ARTICLE II.

Employment AND CHAIRPERSONSHIP

2.1 Employment of Executive.  The Company hereby agrees to continue to employ the Executive, and the Executive agrees to remain in the employ of the Company, on the terms and subject to the conditions herein provided. 

2.2 Term.  The term of employment under this Agreement (the “Term”) shall be for the period beginning on the Effective Date and ending on March 1, 2021, unless earlier terminated as provided in Section ‎4.1.    

2.3 Position and Duties.  During the Term, the Executive shall serve as the Company’s Chief Executive Officer, and effective as of the conclusion of the 2019 Annual Meeting of the Company, the Executive shall also serve as the Company’s President, in each case with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Board.  Such duties, responsibilities and authority may include services for one or more subsidiaries or Affiliates of the Company.  The Executive shall report directly to the Board.  The Executive shall devote substantially all her working time and efforts to the business and affairs of the Company.  The Executive agrees to observe and comply with the Company’s rules and policies, as the same may be adopted and amended from time to time. 

2.4 Chairpersonships.  Commencing at the conclusion of the 2019 Annual Meeting of the Company and ending at the conclusion of the 2021 Annual Meeting of the Company (the “Company Chairperson Period”), the Executive shall serve as the Chairperson of the Board with such responsibilities, duties and authority as may from time to time be agreed upon between the Executive and the Board. Commencing on the date the current Chairperson of the board of directors of Elfa International AB resigns but no later than the conclusion of the 2019 Annual Meeting of the Company and ending on March 1, 2021 (the “Elfa Chairperson Period”), the Executive shall serve as the Chairperson of the board of directors of Elfa International AB with such responsibilities, duties and authority as may from time to time be agreed upon between the Executive and such board.

ARTICLE III.

Compensation and Related Matters

3.1 Annual Base Salary.  During the Term, the Executive shall receive a base salary at an initial rate of $875,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review annually for possible increase, but not decrease (other than any decrease that would not constitute Good Reason), in the Board’s discretion (the “Annual Base Salary”). 

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3.2 Annual Bonus.   With respect to each Fiscal Year that ends during the Term, the Executive shall be eligible to receive an annual cash bonus (the “Annual Bonus”) based upon Company annual EBITDA and/or other financial and non-financial performance targets (the “Performance Targets”), established by the Board; provided that if any such Performance Target is based on Company annual EBITDA, EBITDA shall be determined in the same manner, and with the same adjustments, as Consolidated EBITDA (as defined in the Credit Agreement, entered into as of April 6, 2012, among the Company, the Guarantors (as defined therein) party thereto, the Lenders (as defined therein), JPMorgan Chase Bank, N.A., and the other parties thereto, as amended from time to time (the “Credit Agreement”)), is determined for purposes of the Credit Agreement.  The target Annual Bonus shall be 130% of the Annual Base Salary and the maximum Annual Bonus shall be 200% of the Annual Base Salary.  The amount of the Annual Bonus shall be based upon the Company’s attainment of the Performance Targets, as determined by the Board (or any authorized committee of the Board).  If the percentile level of achievement of a Performance Target is between two levels, the amount earned shall be determined on the basis of a straight-line interpolation between such levels.  Each such Annual Bonus shall be payable within thirty (30) days following the completion of the audited financials for the Fiscal Year to which such Annual Bonus relates, but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations.   Notwithstanding the foregoing, except as set forth in Article V, no bonus shall be payable with respect to any Fiscal Year unless the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the last day of such Fiscal Year;  provided,  however, that the Executive shall remain eligible to receive the Annual Bonus for Fiscal Year 2020, subject to the achievement of the Performance Targets and the other terms of this Section 3.2,  provided that the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the last day of the Term. 

3.3 Annual Equity-Based Compensation.  From and after the Effective Date, the amount and form of Executive’s annual equity awards and the applicable performance targets thereunder shall be determined in or prior to the applicable Fiscal Years.  If the percentile level of achievement of a performance target is between two levels, the amount earned shall be determined on the basis of a straight-line interpolation between such levels.

3.4 Benefits.  During the Term, the Executive shall be entitled to the following benefits: (a) participation in the Company’s employee health and welfare benefit plans and programs and arrangements which are applicable to the Company’s senior executives as may be adopted by the Company from time to time, subject to the terms and conditions of the applicable employee benefit plan, program or arrangement, and (b) indemnification and/or directors and officers liability insurance coverage insuring the Executive against insurable events which occur while the Executive is a director or executive officer of the Company, on terms and conditions that are comparable to those then provided to other current or former directors or executive officers of the Company.

3.5 Vacation and Holidays.  During the Term, the Executive shall be entitled to paid vacation and holidays in accordance with the Company’s policies applicable to senior executives of the Company, provided that the Executive shall be entitled to paid vacation of no

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less than four (4) weeks for each full Fiscal Year during the Term.  Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive.

3.6 Expenses.  During the Term, the Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by her in the performance of her duties to the Company in accordance with the Company’s expense reimbursement policy. During the Company Chairperson Period and the Elfa Chairperson Period, the Company or Elfa International AB, as applicable, shall reimburse the Executive for all reasonable travel and other business expenses incurred by her in the performance of her duties as Chairperson.

3.7 Chairperson Compensation.  For the period commencing on March 1, 2021 and ending at the conclusion of the 2021 Annual Meeting of the Company, the Executive shall receive a fee of $200,000 in respect of her service as Chairperson of the Board, which shall be paid in equal monthly installments on the first day of each month.  For the avoidance of doubt, the Executive shall not receive any compensation in respect of her service as Chairperson of the Board during the Term or as Chairperson of the board of directors of Elfa International AB during the Term.

3.8 Lifetime Executive Discount.  During the Term and following the Date of Termination, the Executive shall be entitled to a sales discount on the Company’s products that is the same as the sales discount afforded to executives of the Company (as may be modified from time to time).

ARTICLE IV.

Termination

4.1 Circumstances.  During the Term, the Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances:

(a) Death.  The Executive’s employment hereunder shall terminate upon her death.

(b) Disability.  If the Executive has incurred a Disability, the Company may terminate the Executive’s employment due thereto.    

(c) Termination for Cause.  The Company may terminate the Executive’s employment for Cause.

(d) Termination without Cause.  The Company may terminate the Executive’s employment without Cause.

(e) Resignation for Good Reason.  The Executive may resign from her employment for Good Reason.

(f) Resignation without Good Reason.  The Executive may resign from her employment without Good Reason.

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4.2 Notice of Termination.  Any termination of the Executive’s employment by the Company or by the Executive pursuant to Section 4.1 (other than termination due to death pursuant to Section 4.1(a)) shall be communicated by a written notice to the other party hereto.  Such written notice (a “Notice of Termination”) shall: (a) indicate the specific termination provision in this Agreement relied upon; and (b) specify a Date of Termination which, (i) if submitted by the Executive, shall be at least sixty (60) days, but no more than six (6) months, following the date of such notice and (ii) if submitted by the Company in connection with a termination of employment by the Company without Cause, shall be at least thirty (30) days following the date of such notice. Notwithstanding the foregoing, the Company may, in its sole discretion, change the Executive’s proposed Date of Termination to any date following the Company’s receipt of the Executive’s Notice of Termination and prior to the date specified in such Notice of Termination.  A Notice of Termination submitted by the Company in connection with a termination of employment by the Company for Cause may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter chosen by the Company in its sole discretion; provided that, notwithstanding the foregoing, any Notice of Termination submitted by the Company in connection with a termination of the Executive’s employment for Cause within the meaning of Section 1.2(e)(i) (due to the Executive’s material breach of any material provision of this Agreement) or Section 1.2(e)(iv) (due to the Executive’s gross neglect in connection with the performance of any material portion of the Executive’s duties) shall indicate a Date of Termination that is at least thirty (30) days following the date of such notice, provided that such breach is capable of cure.  The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause, Good Reason or Disability shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder; provided that a Notice of Termination submitted by the Executive of her intent to resign for Good Reason may not be given later than 90 days after the initial occurrence of the event constituting Good Reason.

4.3 Company Obligations upon Termination.  Upon termination of the Executive’s employment, the Executive (or, in the event of Executive’s death, such person as the Executive shall designate prior to the Executive’s death in a written notice to the Company or, if no such person is designated, the Executive’s estate) shall be entitled to receive: (a) any amount of the Annual Base Salary through the Date of Termination not theretofore paid; (b) any reimbursement of expenses incurred through the Date of Termination owing to the Executive under Section 3.6; (c) any accrued but unused vacation pay owed to the Executive pursuant to Section 3.5; and (d) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3.4, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (including, if applicable, any death benefits).   Except as otherwise set forth in Sections 5.1, 5.2 and 5.3 below, the payments and benefits described in this Section 4.3 shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason (other than, for the avoidance of doubt, any payments or benefits to which the Executive is entitled by virtue of her being a stockholder of the Company) and any equity-based awards (each, an “Equity Award”) the Executive holds on the Date of Termination shall be treated as provided in the applicable plan or award agreement.  The amounts in subsections (a)-(c) above shall be paid within sixty (60) days after the Date of Termination or, if

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earlier, on or before the time required by law, but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations. 

ARTICLE V.

Severance Payments

5.1 Termination due to Death.  If the Executive’s employment is terminated pursuant to Section 4.1(a) due to the Executive’s death, then, notwithstanding the last sentence of Section 3.2, in addition to the amounts set forth in Section 4.3, (a) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (b) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall, as of the Date of Termination, vest in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), and (c) the Company shall pay to the Executive (or to such person as the Executive shall designate prior to the Executive’s death in a written notice to the Company or, if no such person is designated, the Executive’s estate) a prorated amount of the Annual Bonus for the Fiscal Year in which the Date of Termination occurs that the Executive would have received to the extent she remained employed through the end of the Fiscal Year in which the Date of Termination occurred based on the Company’s actual attainment of the applicable Performance Targets (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs), payable at the same time such Annual Bonus would have been paid had the Executive remained employed through the end of the Fiscal Year in which the Date of Termination occurs but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations (but in no event earlier than January 1, or later than December 31, of the calendar year immediately following the calendar year in which the Date of Termination occurs). 

5.2 Termination without Cause; Resignation for Good Reason; Due to Disability. If (a) the Executive’s employment is terminated by the Company without Cause pursuant to Section 4.1(d) or due to Disability pursuant to Section 4.1(b), or (b) the Executive resigns from her employment for Good Reason pursuant to Section 4.1(e), then in addition to the amounts set forth in Section 4.3, (i) the Company shall pay the Executive an amount equal to two (2) times the sum of (x) the Annual Base Salary as in effect immediately prior to the Date of Termination (but prior to any reduction that constitutes Good Reason) and (y) the greater of (I) the Annual Bonus earned by the Executive for the Fiscal Year immediately prior to Fiscal Year in which the Date of Termination occurs, and (II) 130% of the Annual Base Salary (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs), payable in equal installments in accordance with the Company’s payroll practices (disregarding, however, any past or future changes in the Company’s payroll practices that would result in an impermissible change in the timing of payments under this

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provision for purposes of Section 409A), during the two (2)-year period beginning on the first payroll date that follows the thirtieth (30th) day following the Date of Termination, (ii) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iii) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall vest, as of the Date of Termination, in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iv)  in the event that such termination of employment occurs during a Change in Control Period, all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period remains ongoing shall, as of the Date of Termination, fully vest (in the amount that would have vested had the applicable performance period been completed and maximum performance levels achieved), subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), and (v) during the two (2)-year period beginning on the Date of Termination (such period, the  “Continuation Period”), the Executive and her eligible dependents, if applicable, shall be entitled to continued participation in the Company’s medical, health, disability and similar welfare benefit plans in which she and her eligible dependents, if applicable, were participating on the Date of Termination at the Company’s sole expense; providedthat if such continued participation is not permitted under such plans, the Company shall provide to the Executive and her eligible dependents, if applicable, substantially similar benefits during the Continuation Period;  provided,  further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive.  In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment.  The COBRA health continuation period under Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date.  The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Company’s group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations.  The Health Payment and the Health Gross-up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations. If the Executive dies after the Executive becomes entitled to any payments pursuant to Section 4.3,   this Section 5.2 or Section 5.3, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to the Executive, to such person as the Executive shall designate in a written notice to the Company (or, if no such person is designated, to her estate).

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5.3 Termination Due to Expiration of the Term.  If the Executive’s employment is terminated due to expiration of the Term pursuant to Section 2.2, (i) the Company shall pay the Executive an amount equal to the sum of (x) the Annual Base Salary as in effect immediately prior to the Date of Termination and (y) the greater of (I) the Annual Bonus earned by the Executive for the Fiscal Year immediately prior to the Fiscal Year in which the Date of Termination occurs, and (II) 130% of the Annual Base Salary (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs),  payable in equal installments in accordance with the Company’s payroll practices (disregarding, however, any past or future changes in the Company’s payroll practices that would result in an impermissible change in the timing of payments under this provision for purposes of Section 409A), during the one (1)-year period beginning on the first payroll date that follows March 31, 2021, (ii) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iii) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall, as of the Date of Termination, vest in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), and (iv) during the two (2)-year period beginning on March 1, 2021 (such period, the  “Post-Expiration Continuation Period”), the Executive and her eligible dependents, if applicable, shall be entitled to continued participation in the Company’s medical, health, disability and similar welfare benefit plans in which she and her eligible dependents, if applicable, were participating on March 1, 2021 at the Company’s sole expense; providedthat if such continued participation is not permitted under such plans, the Company shall provide to the Executive and her eligible dependents, if applicable, substantially similar benefits during the Post-Expiration Continuation Period;  provided,  further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive.  In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment.  The COBRA health continuation period under Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date.  The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Company’s group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations.  The Health Payment and the Health Gross-Up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations. 

5.4 Section 409A.  Notwithstanding any provision to the contrary in this Agreement, no cash payments or other benefits described in Sections 5.2 or 5.3 will be paid or

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made available to the Executive unless the Executive’s termination of employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations, and unless, on or prior to the thirtieth (30th) day following the Date of Termination, (a) the Executive shall have executed a waiver and release of claims in the form attached as Exhibit A hereto, and (b) such release shall not have been revoked by the Executive prior to such thirtieth (30th) day.  Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed at the time of her separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion of the Executive’s termination benefits shall not be provided to the Executive prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in the Department of Treasury Regulations issued under Section 409A of the Code) or (ii) the date of the Executive’s death.  Upon the expiration of the applicable deferral period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to Section5.2 or 5.3 shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.  For the avoidance of doubt, no payments or benefits shall be payable under Section 5.2 in the event of the Executive’s termination of employment due to expiration of the Term under Section 2.2. 

5.5 Survival.  The expiration or termination of the Term shall not impair the rights or obligations of any party hereto that shall have accrued prior to such expiration or termination or that by their express terms survive the expiration or termination of the Term.

ARTICLE VI.

Non-Competition; Non-Solicitation

6.1 Non-Competition Obligation.  The Executive shall not, at any time during the period commencing on the Effective Date and ending on the second (2nd) anniversary of the Date of Termination (the “Restricted Period”), directly or indirectly, enter the employ of, or render any services to, any Person engaged in any business in North America or anywhere in the world in which the Company conducts business as of the Date of Termination (a) which derives more than fifteen percent (15%) of its consolidated revenues from the marketing or distribution of products sold by the Company, (b) which participates in the manufacturing or design of modular or component shelving or drawer systems or other material products of Elfa International AB and its subsidiaries, or (c) which, as of the Date of Termination, the Board (including any committee thereof) or senior management of the Company has taken active steps to engage in or acquire (any such business, a “Competitive Business”); and the Executive shall not become interested in any such Competitive Business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any other relationship or capacity; provided,  however, that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from working for another retail organization, provided that the Executive is not engaged in any aspect of the business of such retail organization (including, but not limited to, starting any division or other segment of such retail organization in a Competitive Business), whether in a supervisory, consultative or other capacity, relating to a Competitive Business.  For the avoidance of doubt, the Executive’s position as a senior executive

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officer of a retail organization, of which a Competitive Businessis an immaterial aspect of its general retail business, shall not be prohibited by, or constitute a violation of, the terms of this Section 6.1;  provided that the Executive does not participate in any day-to-day operations or in any strategic or other decisions relating to the conduct of such retail organization as it relates to a Competitive Businessand, to the extent necessary, has delegated such responsibilities to other management personnel of such retail organization.  It is expressly agreed that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from acquiring, solely as an investment, up to five percent (5%) of the outstanding shares of capital stock of any public corporation or working for a retail organization, provided that the Executive is not, directly or indirectly, engaged in a business relating to a Competitive Business.

6.2 Non-Solicitation Obligation.  The Executive shall not, at any time during the Restricted Period,  for her benefit or for the benefit of any other Person, solicit the employment or services of, or hire (or cause any Person to so solicit or hire), any person who upon the termination of the Executive’s employment hereunder, or within twelve (12) months prior thereto, was (a) employed by the Company or (b) a consultant to the Company. The restrictions in this Section 6.2 shall not apply to (i) general solicitations that are not specifically directed to employees of or consultants to the Company, (ii) at the request of a former employee, serving as an employment reference for such former employee, (iii) solicitations or hirings of former employees of the Company whose employment was terminated by the Company without “Cause” or who terminated their employment for “Good Reason” (as such terms are defined in the applicable employment agreement or, in the absence of such an agreement, as determined by a majority of the Board in its good faith discretion), or (iv) except as would constitute a breach of the covenants in Section 6.1, the solicitation or hiring of either Kip Tindell or Sharon Tindell following such executive’s termination of employment by the Company without “Cause” or by such executive for “Good Reason” (as such terms are defined in the applicable employment agreement).

6.3 Definition.  As used in this Article VI, the term “Company” shall include the Company (as defined in the preamble hereof) and any of its direct or indirect subsidiaries.

6.4 Amendment.  The provisions contained in Sections 6.1 and 6.2 may be altered and/or waived only with the prior written consent of a majority of the Board or the Compensation Committee.

ARTICLE VII.

Nondisclosure of Proprietary Information

7.1 Nondisclosure.  Except as required in the faithful performance of the Executive’s duties hereunder, including during the Company Chairperson Period and the Elfa Chairperson Period, or pursuant to Section 7.3, the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, or use for her benefit or the benefit of any Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status,

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compensation paid to employees or other terms of employment (“Proprietary Information”), or deliver to any Person any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information.  The Executive’s obligation to maintain and not use, disseminate, disclose or publish, or use for her benefit or the benefit of any Person any Proprietary Information after the Date of Termination shall continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executive’s direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company.  The parties hereby stipulate and agree that as between them, the Proprietary Information identified herein is important, material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).    Notwithstanding anything herein to the contrary, during the Term and following the Date of Termination, each of the Executive and the Company shall retain the right to use the seven “Foundation Principles” described in the Company’s news release, dated as of January 10, 2005 (with “Communication Is Leadership” having been added in 2008), without payment of royalties or other consideration, and nothing in this Agreement shall have any effect on the ownership of such Foundation Principles as of the Effective Date. 

7.2 Return of Proprietary Information.  Upon termination of the Executive’s employment with the Company for any reason and except to the extent the Proprietary Information was provided to the Executive in her capacity as Chairperson of the Company or Chairperson of Elfa International AB, the Executive shall promptly deliver to the Company all Proprietary Information in the Executive’s possession, including without limitation all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, marketing strategies, products or processes.  Notwithstanding anything to the contrary in this Section 7.2 or in Section 7.1, the Executive shall be entitled to retain and disclose to the Executive’s counsel, financial or other professional advisors and to the Executive’s immediate family (provided that such advisors and family members agree to the restrictions in Section 7.1 with respect to such information): (a) information showing the Executive’s equity awards or other compensation or relating to expense reimbursements, (b) copies of employee benefit and compensation plans, programs, agreements and other arrangements of the Company in which the Executive was a participant or covered and (c) compensation information that the Executive reasonably believes the Executive requires for the Executive’s personal tax preparation.

7.3 Response to Legal Process; Contents of Book.  Notwithstanding Section 7.1, (a) the Executive may respond to a lawful and valid subpoena or other legal process relating to the Company or its business or operations; provided that the Executive shall: (i) give the Company the earliest possible notice thereof; (ii) as far in advance of the return date as possible, at the Company’s sole cost and expense, make available to the Company and its counsel the documents and other information sought; and (iii) at the Company’s sole cost and expense, assist such counsel in resisting or otherwise responding to such process, (b) the Executive’s reporting of possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation shall not violate or

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constitute a breach of this Agreement, and (c) the disclosure of information, including Proprietary Information, in the Book (as defined in the Indemnification and Hold Harmless Agreement by and between Parent and Kip Tindell, dated as of June 13, 2012) authored by Kip Tindell shall not violate or constitute a breach of this Agreement.

7.4 Non-Disparagement. 

(a) The Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, members or Affiliates, either orally or in writing, at any time; provided that the Executive may confer in confidence with her legal representatives and make truthful statements as required by law.

(b) The Company agrees to instruct the members of the Board and the executive officers of the Company not to disparage the Executive, either orally or in writing, at any time; provided that the Company may confer in confidence with its legal representatives and make truthful statements as required by law.

7.5 Company Definition.  As used in this Article VII, the term “Company” shall include the Company (as defined in the preamble hereof), its parent, related entities, and any of its direct or indirect subsidiaries.

7.6 Exceptions.  The Executive acknowledges that the Company has provided the Executive with the following notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act of 2016:  (i) the Executive shall not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of Proprietary Information that is made in confidence to a U.S. federal, state or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law; (ii) the Executive shall not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of Proprietary Information that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (iii) if the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Proprietary Information to the Executive’s attorney and use the Proprietary Information in the court proceeding, if the Executive files any document containing the Proprietary Information under seal, and does not disclose the Proprietary Information, except pursuant to court order.  However, under no circumstance will the Executive be authorized to disclose any information covered by attorney-client privilege or attorney work product of the Company without prior written consent of the Company’s General Counsel or other officer designated by the Company.    

ARTICLE VIII.

REMEDIES

8.1 Acknowledgement; Blue Pencil.  The Executive acknowledges and agrees that the benefits and payments provided under this Agreement represent adequate consideration for the Executive’s agreement to be bound by the restrictive covenants set forth in Articles VI and VII, and that the Executive’s agreement to be bound by such restrictive covenants is a material inducement to the Company’s entering into this Agreement.  In the event, however, that any

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restrictive covenant set forth in Articles VI or VII shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it is the intention of the Executive and Company that it will be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

8.2 Injunctive Relief.  The Executive acknowledges and agrees that a breach of the covenants contained in Articles VI or VII will cause irreparable damage to Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate.  Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Articles VI or VII, in addition to any other remedy which may be available at law or in equity, the Company will be entitled to specific performance and injunctive relief without any requirement to post a bond.  The Company acknowledges and agrees that a breach of the covenants contained in Section 7.4(b) will cause irreparable damage to the Executive, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate.  Accordingly, the Company agrees that in the event of a breach of any of the covenants contained in Section 7.4(b), in addition to any other remedy which may be available at law or in equity, the Executive will be entitled to specific performance and injunctive relief without any requirement to post a bond.

ARTICLE IX.

MISCELLANEOUS

9.1 Assignment.  The Company may assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise.  The Executive may not assign her rights or obligations under this Agreement to any individual or entity.  This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.

9.2 Governing Law.  This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of New York, without reference to the principles of conflicts of law of New York or any other jurisdiction, and where applicable, the laws of the United States.

9.3 Notices.  Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows:

(a) If to the Company:

The Container Store Group, Inc.

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500 Freeport Parkway

Coppell, TX 75019

ATTN:  General Counsel

with a copy to:

Latham & Watkins LLP

885 Third Avenue

Suite 1000

New York, NY 10022

ATTN:  Howard Sobel; Bradd Williamson

(b)If to the Executive, to the address set forth in the Company’s records

or at any other address as any party shall have specified by notice in writing to the other party.

9.4 Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

9.5 Entire Agreement.  As of the Effective Date, the terms of this Agreement and the other agreements and instruments contemplated hereby or referred to herein are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of (and supersede) any prior or contemporaneous agreement (including without limitation the Prior Agreement and any term sheet or similar agreement entered into between the Company and the Executive).  The parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.

9.6 Amendments; Waivers.  This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a duly authorized officer of Company and approved by a majority of the Board, which expressly identifies the amended provision of this Agreement.  By an instrument in writing similarly executed and approved by a majority of the Board, the Executive or a duly authorized officer of the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform, provided,  however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or conform.  No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

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9.7 No Inconsistent Action.  The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement.  Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.

9.8 Construction.  This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning.  Any presumption or principle that the language is to be construed against any party shall not apply.  The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation.  Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary.  Also, unless the context clearly indicates to the contrary: (a) the plural includes the singular and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; (e) “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.

9.9 Arbitration.  Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before an arbitrator in New York, New York in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitration award in any court having jurisdiction. Notwithstanding the foregoing, (a) the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Articles VI or VII of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without requiring the Company to post a bond, and (b) the Executive shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7.4(b) of this Agreement and the Company hereby consents that such restraining order or injunction may be granted without requiring the Executive to post a bond.  Only individuals who are: (i) lawyers engaged full-time in the practice of law and (ii) on the AAA register of arbitrators shall be selected as an arbitrator.  Within twenty (20) days of the conclusion of the arbitration hearing, the arbitrator shall prepare written findings of fact and conclusions of law.  It is mutually agreed that the written decision of the arbitrator shall be valid, binding, final and non-appealable, provided,  however, that the parties hereto agree that the arbitrator shall not be empowered to award punitive damages against any party to such arbitration.  The arbitrator shall require the non‑prevailing party to pay the arbitrator’s full fees and expenses or, if in the arbitrator’s opinion there is no prevailing party, the arbitrator’s fees and expenses shall be borne equally by the parties thereto.  In the event action is brought to enforce the provisions of this Agreement pursuant to this Section 9.9, the non-prevailing parties shall be required to pay the reasonable attorney’s fees and expenses of the prevailing parties, except that if in the opinion of the court or arbitrator deciding such action there is no prevailing party, each party shall pay its own attorney’s fees and expenses.

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9.10 Enforcement.  In the event any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect: (a) such provision shall be fully severable; (b) this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable provision had never comprised a portion of this Agreement; and (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such invalid, illegal or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such invalid, illegal or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in substance to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable.

9.11 Withholding.  The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.

9.12 Employee Acknowledgment.  The Executive acknowledges that she has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on her own judgment.

9.13 Section 409A.    

(a) To the extent applicable, this Agreement shall be interpreted in accordance with Section 409A.  Notwithstanding any provision of this Agreement to the contrary, in the event that a majority of the Board determines that any amounts payable pursuant to this Agreement may be subject to Section 409A, the Company may adopt such amendments to this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary or appropriate to: (i) exempt such payments from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to such payments or (ii) comply with the requirements of Section 409A and thereby avoid the application of penalty taxes under Section 409A;  provided that no such amendments, policies, procedures or actions shall reduce the economic value to the Executive of this Agreement from the value of this Agreement (without taking into account the effect of Section 409A) prior to the adoption or taking of such amendments, policies, procedures or actions.  No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its Affiliates, employees or agents.

(b) To the extent that any installment payments under this Agreement are deemed to constitute “nonqualified deferred compensation” within the meaning of Section 409A, for purposes of Section 409A (including, without limitation, for purposes of Section 1.409A-2(b)(2)(iii) of the Department of Treasury Regulations), each such payment that the Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment.

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(c) To the extent that any reimbursements or corresponding in-kind benefits provided to the Executive under this Agreement (including, without limitation, the Health Payment and the Health Gross-Up Payment) are deemed to constitute “deferred compensation” within the meaning of Section 409A to the Executive, such amounts shall be paid or reimbursed reasonably promptly, but not later than December 31 of the year following the year in which the expense was incurred, and in any event in accordance with Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations.  The amount of any such payments or expense reimbursements in one calendar year shall not affect the expenses or in-kind benefits eligible for payment or reimbursement in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and the Executive’s right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.

9.14 Cooperation.  During the Term hereof and thereafter, the Executive shall cooperate with the Company in any disputes with third parties, internal investigations or administrative, regulatory or judicial proceedings as reasonably requested by the Company  and at the Company’s sole cost and expense (including, without limitation, the Executive being available to the Company upon reasonable notice for interviews and factual investigations, at times and on schedules that are reasonably consistent with the Executive’s other permitted activities and commitments).

9.15 Indemnification.  To the maximum extent allowed under applicable law and the Company’s By-Laws and other corporate organizational documents, in the event that the Executive is a party to any threatened, pending or completed action, suit or proceeding (other than any action, suit or proceeding arising under or related to this Agreement or any other compensation agreement), whether civil, criminal, administrative or investigative, by reason of the fact that she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company shall indemnify the Executive and hold her harmless against all expenses (including reasonable and documented attorneys’ fees and costs incurred by the Executive), judgments, fines and amounts paid in settlement (subject to the Company’s consent, with such consent not to be unreasonably withheld) actually and reasonably incurred by her, as and when incurred, in connection with such action, suit or proceeding;  provided that the Executive acted in good faith and in a manner she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe her conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Executive did not act in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company, or that, with respect to any criminal action or proceeding, the Executive had reasonable cause to believe that her conduct was unlawful.  The provisions of this Section 9.15 shall not be deemed exclusive of any other rights of indemnification to which the Executive may be entitled or which may be granted to her, and it shall be in addition to any rights of indemnification to which she may be entitled under any policy of insurance.  These provisions shall continue in effect after Executive has ceased to be an officer or director of the Company.

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9.16 No Mitigation.  The Executive shall have no obligation to mitigate any payments due hereunder.

[Signature Pages Follow]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

THE CONTAINER STORE GROUP, INC.

By:	/s/ Jodi Taylor
	Name: Jodi Taylor
	Title: Chief Financial Officer, Chief Administrative Officer & Secretary

[Fifth Amended and Restated Employment Agreement with Melissa Reiff]

US-DOCS\111566278.1

EXECUTIVE

By:	/s/ Melissa Reiff
	Melissa Reiff

[Fifth Amended and Restated Employment Agreement with Melissa Reiff]

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EXHIBIT A

Form of Release Agreement

Melissa Reiff (the “Executive”) agrees for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, hereby forever to release, discharge, and covenant not to sue The Container Store Group, Inc., a Delaware corporation (the “Company”), the Company’s past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past and present directors, shareholders, officers, general or limited partners, employees, agents, and attorneys, and agents and representatives of such entities, and employee benefit plans in which the Executive is or has been a participant by virtue of her employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date this release (the “Release”) is executed, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (a) Executive’s employment with the Company or the termination thereof or (b) Executive’s status as a holder of any securities of the Company based on any events or circumstances arising or occurring on or prior to the date this Release is executed, and any and all claims based on, relating to, or arising under federal, state, or local laws, including without limitation claims of discrimination, harassment, retaliation, wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, liability in tort, or for violation of public policy, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934 (the “Exchange Act”), the Texas Commission on Human Rights Act, the Texas Anti-Retaliation Act, the Texas Labor Code, the Sarbanes-Oxley Act, and similar state or local statutes, ordinances, and regulations;  provided,  however, notwithstanding anything to the contrary set forth herein, that this general release shall not extend to (i) benefit claims under employee pension benefit plans in which the Executive is a participant by virtue of her employment with the Company or to benefit claims under employee welfare benefit plans (e.g., claims for medical care, death, or onset of disability), (ii) accrued and vested benefits under applicable employee benefit plans, or the Executive’s right to continue or convert coverage under certain employee benefit plans, in accordance with the terms of those plans and applicable law; (iii) any obligation under this Release, or under that certain Fifth Amended and Restated Employment Agreement entered into and effective on November 5, 2019, by and between the Company and the Executive, assumed by any party thereto; and (iv) reporting possible violations of federal law or regulation to, otherwise communicating with or participating in any investigation or proceeding that may be conducted by, or providing documents and other information, without notice to the Company, to, any federal, state or local governmental authority, including in accordance with the provisions of and rules promulgated

US-DOCS\111566278.1

under Section 21F of the Exchange Act or Section 806 of the Sarbanes-Oxley Act, as each may have been amended from time to time, or any other whistleblower protection provisions of state or federal law or regulation.  Pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

The Executive understands that this Release includes a release of claims arising under the Age Discrimination in Employment Act (ADEA).  The Executive understands and warrants that she has been given a period of twenty-one (21) days to review and consider this Release and such period shall not be affected or extended by any changes, whether material or immaterial, that might be made to this Release.  The Executive is hereby advised to consult with an attorney prior to executing the Release.  By her signature below, the Executive warrants that she has had the opportunity to do so and to be fully and fairly advised by that legal counsel as to the terms of this Release.  The Executive further warrants that she understands that she may use as much or all of her twenty-one (21)-day period as she wishes before signing, and warrants that she has done so.

The Executive further warrants that she understands that she has seven (7) days after signing this Release to revoke the Release by notice in writing to _____________________________________________________________________________.  This Release shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7)-day revocation period without _____________ having received such revocation, but not before such time.

*  *  *  *  *

The Executive acknowledges and agrees that this Release is a legally binding document and the Executive’s signature will commit the Executive to its terms.  Executive acknowledges and agrees that the Executive has carefully read and fully understands all of the provisions of this Release and that the Executive voluntarily enters into this Release by signing below.  Upon execution, the Executive agrees to deliver a signed copy of this Release to .

____________________________________

Melissa Reiff

Date:  _______________________________

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EX-10.2

Exhibit 10.2

second AMENDED AND RESTATED Employment Agreement

This Second Amended and Restated Employment Agreement (the “Agreement”) is entered into on and effective as of November 5, 2019 (the “Effective Date”), by and between Jodi Taylor  (the “Executive”) and The Container Store Group, Inc. (formerly known as TCS Holdings, Inc.), a Delaware corporation (“Parent”), and any of its subsidiaries and affiliates as may employ the Executive from time to time (collectively, and together with any successor thereto, the “Company”).

RECITALS

WHEREAS, the Company and the Executive are currently parties to that certain Amended and Restated Employment Agreement entered into on and effective as of January 22, 2019 (the “Prior Agreement”);

WHEREAS, the Company desires to assure itself of the continued services of the Executive by engaging the Executive to perform services on the terms and subject to the conditions set out in this Agreement;

WHEREAS, the Executive desires to provide services to the Company on the terms and subject to the conditions set out in this Agreement; and

WHEREAS, the Company and the Executive desire to enter into this Agreement and this Agreement shall supersede the Prior Agreement;

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE I.

DefinED TERMS

1.1 Previously Defined Terms.  As used herein, each term defined in the first paragraph and recitals of this Agreement shall have the meaning set forth above.

1.2 Definitions.  As used herein, the following terms shall have the following respective meanings:

(a) “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. As used in the preceding sentence, “control” has the meaning given such term under Rule 405 of the Securities Act of 1933, as amended.

(b) “Annual Base Salary” has the meaning set forth in Section 3.1.  

(c) “Annual Bonus” has the meaning set forth in Section 3.2.

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(d) “Board” means the Board of Directors of the Parent.

(e) The Company shall have “Cause” to terminate the Executive’s employment hereunder upon the occurrence of any one or more of the following events:  (i) a material breach by the Executive of any material provision of this Agreement which is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such breach, to the extent such breach is capable of cure; (ii) the Executive’s conviction of, or entry by the Executive of a guilty or nolo contendere plea to, the commission of a felony or a crime involving moral turpitude, other than vicarious liability or traffic violations; (iii) the Executive’s intentional breach of Company policies constituting theft or embezzlement from the Company or any of its customers or suppliers; or (iv) the Executive’s gross neglect or intentional misconduct in connection with the performance of any material portion of the Executive’s duties (which, in the case of the Executive’s gross neglect, is not corrected by the Executive within thirty (30) days after receipt of written notice from the Company specifying such neglect, to the extent that such neglect is capable of cure).

(f) “CFO Transition Date” has the meaning set forth in Section 2.3.

(g) “Change in Control”  has the meaning set forth in the Company’s Amended and Restated 2013 Incentive Award Plan, provided that such event also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

(h) “Change in Control Period” means the period beginning on the date of a Change in Control and ending on the second (2nd)  anniversary of such Change in Control.

(i) “Compensation Committee” means the Compensation Committee of the Board.

(j) “Competitive Business” has the meaning set forth in Section 6.1.

(k) “Continuation Period” has the meaning set forth in Section 5.2.

(l) “Date of Termination” means: (i) if the Executive’s employment is terminated by her death, the date of her death; (ii) if the Executive’s employment is terminated pursuant to Sections 4.1(b)–(f), either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 4.2, whichever is earlier; or (iii) if the Executive’s employment is terminated due to the expiration of the Term under Section 2.2, the date of expiration of the then-current Term.

(m) “Disability” means the Executive’s incapacity to perform the essential duties of her position for any six (6) months (whether or not consecutive) during any twelve (12) month period due to the Executive’s physical or mental illness, as determined by a physician mutually acceptable to, and agreed to in good faith by, a majority of the Board and the Executive.

(n) “Equity Award” has the meaning set forth in Section 4.3.

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(o) “Fiscal Year” means the fiscal year of the Company, as in effect from time to time.

(p) The Executive shall have “Good Reason” to resign from her employment hereunder upon the occurrence of any one or more of the following events without her prior written consent:  (i) an adverse change in the Executive’s title or reporting line or the Executive’s material duties, authorities or responsibilities (provided that in no event shall the Executive’s ceasing to serve as the Company’s Chief Financial Officer as contemplated by Section 2.3 constitute Good Reason); (ii) the assignment to the Executive of duties materially inconsistent with her position; (iii) a material breach by the Company of any material provision of this Agreement; (iv) a reduction of the Executive’s Annual Base Salary or benefits hereunder (other than any such reduction by no more than 10% of the Executive’s Annual Base Salary which is part of, and generally consistent with, a general reduction affecting other similarly situated executives of the Company) or Annual Bonus opportunity (it being understood that the Performance Targets shall be determined annually by the Board); (v) failure of the Company to pay any portion of the Annual Base Salary or Annual Bonus otherwise payable to the Executive or to provide the benefits set forth in Section 3.4 (other than as provided in clause (iv) above); or (vi) the Company’s requiring the Executive to be headquartered at any office or location more than fifty (50) miles from Coppell, Texas, except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations; provided,  however, that notwithstanding any of the foregoing the Executive may not resign from her employment for Good Reason unless: (A) the Executive provides the Company with at least sixty (60) days prior written Notice of Termination of her intent to resign for Good Reason and (B) the Company has not corrected the circumstances constituting Good Reason prior to the Date of Termination specified in the Notice of Termination;  provided that such Notice of Termination may not be given later than ninety (90) days after the initial occurrence of the event constituting Good Reason.

(q) “Health Gross-Up Payment” means an additional amount equal to the federal, state and local income and payroll taxes that the Executive incurs on each monthly Health Payment. 

(r) “Health Payment” means the monthly premium amount paid by the Executive pursuant to Section 5.2. 

(s) “Incumbent Board” has the meaning set forth in Section 1.2(g).

(t) “Notice of Termination” has the meaning set forth in Section 4.2.  

(u) “Performance Target” has the meaning set forth in Section 3.2.

(v) “Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

(w) “Post-Expiration Continuation Period” has the meaning set forth in Section 5.3.

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(x) “Proprietary Information” has the meaning set forth in Section 7.1.

(y) “Restricted Period” has the meaning set forth in Section 6.1.

(z) “Section 409A” means Section 409A of the United States Internal Revenue Code of 1986, as amended, and the Department of Treasury regulations and other interpretive guidance issued with respect thereto.

(aa) “Successor Entity” has the meaning set forth in Section 1.2(g).

(bb) “Term” has the meaning set forth in Section 2.2.

ARTICLE II.

Employment

2.1 Employment of Executive.  The Company hereby agrees to continue to employ the Executive, and the Executive agrees to remain in the employ of the Company, on the terms and subject to the conditions herein provided. 

2.2 Term.  The term of employment under this Agreement (the “Term”) shall be for the period beginning on the Effective Date and ending on March 1, 2021, unless earlier terminated as provided in Section 4.1.

2.3 Position and Duties.   During the Term, the Executive shall serve as the Company’s Chief Financial Officer, Chief Administrative Officer and Secretary until a mutually agreed upon date after March 1, 2020 but before September 1, 2020, (the “CFO Transition Date”), and the Company’s Chief Administrative Officer and Secretary from the CFO Transition Date until the end of the Term, in each case with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Board.  Such duties, responsibilities and authority may include services for one or more subsidiaries or Affiliates of the Company.  The Executive shall report to the Chief Executive Officer.  The Executive shall devote substantially all her working time and efforts to the business and affairs of the Company.  The Executive agrees to observe and comply with the Company’s rules and policies, as the same may be adopted and amended from time to time.

ARTICLE III.

Compensation and Related Matters

3.1 Annual Base Salary.  During the Term, the Executive shall receive a base salary at an initial rate of $600,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review annually for possible increase, but not decrease (other than any decrease that would not constitute Good Reason), in the Board’s discretion (the “Annual Base Salary”).

3.2 Annual Bonus. With respect to each Fiscal Year that ends during the Term, the Executive shall be eligible to receive an annual cash bonus (the “Annual Bonus”) based upon Company annual EBITDA and/or other financial and non-financial performance targets (the “Performance Targets”), established by the Board; provided that if any such Performance Target

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is based on Company annual EBITDA, EBITDA shall be determined in the same manner, and with the same adjustments, as Consolidated EBITDA (as defined in the Credit Agreement, entered into as of April 6, 2012, among the Company, the Guarantors (as defined therein) party thereto, the Lenders (as defined therein), JPMorgan Chase Bank, N.A., and the other parties thereto, as amended from time to time (the “Credit Agreement”)), is determined for purposes of the Credit Agreement.  The target Annual Bonus shall be 85% of the Annual Base Salary and the maximum Annual Bonus shall be 150% of the Annual Base Salary.  The amount of the Annual Bonus shall be based upon the Company’s attainment of the Performance Targets, as determined by the Board (or any authorized committee of the Board).  If the percentile level of achievement of a Performance Target is between two levels, the amount earned shall be determined on the basis of a straight-line interpolation between such levels.  Each such Annual Bonus shall be payable within thirty (30) days following the completion of the audited financials for the Fiscal Year to which such Annual Bonus relates, but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations.   Notwithstanding the foregoing, except as set forth in Article V, no bonus shall be payable with respect to any Fiscal Year unless the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the last day of such Fiscal Year;  provided,  however, that the Executive shall remain eligible to receive the Annual Bonus for Fiscal Year 2020, subject to the achievement of the Performance Targets and the other terms of this Section 3.2, provided that the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the last day of the Term.     

3.3 Annual Equity-Based Compensation.    From and after the Effective Date, the amount and form of Executive’s annual equity awards and the applicable performance targets thereunder shall be determined in or prior to the applicable Fiscal Years.  If the percentile level of achievement of a performance target is between two levels, the amount earned shall be determined on the basis of a straight-line interpolation between such levels.

3.4 Benefits.  During the Term, the Executive shall be entitled to the following benefits: (a) participation in the Company’s employee health and welfare benefit plans and programs and arrangements which are applicable to the Company’s senior executives as may be adopted by the Company from time to time, subject to the terms and conditions of the applicable employee benefit plan, program or arrangement, and (b) indemnification and/or directors and officers liability insurance coverage insuring the Executive against insurable events which occur while the Executive is a director or executive officer of the Company, on terms and conditions that are comparable to those then provided to other current or former directors or executive officers of the Company.

3.5 Vacation and Holidays.  During the Term, the Executive shall be entitled to paid vacation and holidays in accordance with the Company’s policies applicable to senior executives of the Company, provided that the Executive shall be entitled to paid vacation of no less than four (4) weeks for each full Fiscal Year during the Term.  Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive.

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3.6 Expenses.  During the Term, the Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by her in the performance of her duties to the Company in accordance with the Company’s expense reimbursement policy. 

3.7 Lifetime Executive Discount.  During the Term and following the Date of Termination, the Executive shall be entitled to a sales discount on the Company’s products that is the same as the sales discount afforded to executives of the Company (as may be modified from time to time).

ARTICLE IV.

Termination

4.1 Circumstances.  During the Term, the Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances:

(a) Death.  The Executive’s employment hereunder shall terminate upon her death.

(b) Disability.  If the Executive has incurred a Disability, the Company may terminate the Executive’s employment due thereto.    

(c) Termination for Cause.  The Company may terminate the Executive’s employment for Cause.

(d) Termination without Cause.  The Company may terminate the Executive’s employment without Cause.

(e) Resignation for Good Reason.  The Executive may resign from her employment for Good Reason.

(f) Resignation without Good Reason.  The Executive may resign from her employment without Good Reason.

4.2 Notice of Termination.  Any termination of the Executive’s employment by the Company or by the Executive pursuant to Section 4.1 (other than termination due to death pursuant to Section 4.1(a)) shall be communicated by a written notice to the other party hereto.  Such written notice (a “Notice of Termination”) shall: (a) indicate the specific termination provision in this Agreement relied upon; and (b) specify a Date of Termination which, (i) if submitted by the Executive, shall be at least sixty (60) days, but no more than six (6) months, following the date of such notice and (ii) if submitted by the Company in connection with a termination of employment by the Company without Cause, shall be at least thirty (30) days following the date of such notice. Notwithstanding the foregoing, the Company may, in its sole discretion, change the Executive’s proposed Date of Termination to any date following the Company’s receipt of the Executive’s Notice of Termination and prior to the date specified in such Notice of Termination.  A Notice of Termination submitted by the Company in connection with a termination of employment by the Company for Cause may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter

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chosen by the Company in its sole discretion; provided that, notwithstanding the foregoing, any Notice of Termination submitted by the Company in connection with a termination of the Executive’s employment for Cause within the meaning of Section 1.2(e)(i) (due to the Executive’s material breach of any material provision of this Agreement) or Section 1.2(e)(iv) (due to the Executive’s gross neglect in connection with the performance of any material portion of the Executive’s duties) shall indicate a Date of Termination that is at least thirty (30) days following the date of such notice, provided that such breach is capable of cure.  The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause, Good Reason or Disability shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder; provided that a Notice of Termination submitted by the Executive of her intent to resign for Good Reason may not be given later than 90 days after the initial occurrence of the event constituting Good Reason.

4.3 Company Obligations upon Termination.  Upon termination of the Executive’s employment, the Executive (or, in the event of Executive’s death, such person as the Executive shall designate prior to the Executive’s death in a written notice to the Company or, if no such person is designated, the Executive’s estate) shall be entitled to receive: (a) any amount of the Annual Base Salary through the Date of Termination not theretofore paid; (b) any reimbursement of expenses incurred through the Date of Termination owing to the Executive under Section 3.6; (c) any accrued but unused vacation pay owed to the Executive pursuant to Section 3.5; and (d) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3.4, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (including, if applicable, any death benefits).   Except as otherwise set forth in Sections 5.1, 5.2 and 5.3 below, the payments and benefits described in this Section 4.3 shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason (other than, for the avoidance of doubt, any payments or benefits to which the Executive is entitled by virtue of her being a stockholder of the Company) and any equity-based awards (each, an “Equity Award”) the Executive holds on the Date of Termination shall be treated as provided in the applicable plan or award agreement.  The amounts in subsections (a)-(c) above shall be paid within sixty (60) days after the Date of Termination or, if earlier, on or before the time required by law, but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations. 

ARTICLE V.

Severance Payments

5.1 Termination due to Death.  If the Executive’s employment is terminated pursuant to Section 4.1(a) due to the Executive’s death, then, notwithstanding the last sentence of Section 3.2, in addition to the amounts set forth in Section 4.3, (a) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon

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termination of employment), (b) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall, as of the Date of Termination, vest in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), and (c) the Company shall pay to the Executive (or to such person as the Executive shall designate prior to the Executive’s death in a written notice to the Company or, if no such person is designated, the Executive’s estate) a prorated amount of the Annual Bonus for the Fiscal Year in which the Date of Termination occurs that the Executive would have received to the extent she remained employed through the end of the Fiscal Year in which the Date of Termination occurred based on the Company’s actual attainment of the applicable Performance Targets (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs), payable at the same time such Annual Bonus would have been paid had the Executive remained employed through the end of the Fiscal Year in which the Date of Termination occurs but in any event within the period required by Section 409A such that it qualifies as a “short-term deferral” pursuant to Section 1.409A-1(b)(4) of the Department of Treasury Regulations (but in no event earlier than January 1, or later than December 31, of the calendar year immediately following the calendar year in which the Date of Termination occurs). 

5.2 Termination without Cause; Resignation for Good Reason; Due to Disability. If (a) the Executive’s employment is terminated by the Company without Cause pursuant to Section 4.1(d) or due to Disability pursuant to Section 4.1(b), or (b) the Executive resigns from her employment for Good Reason pursuant to Section 4.1(e), then in addition to the amounts set forth in Section 4.3, (i) the Company shall pay the Executive an amount equal to two (2) times the sum of (x) the Annual Base Salary as in effect immediately prior to the Date of Termination (but prior to any reduction that constitutes Good Reason) and (y) the greater of (I) the Annual Bonus earned by the Executive for the Fiscal Year immediately prior to Fiscal Year in which the Date of Termination occurs, and (II) 85% of the Annual Base Salary (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs), payable in equal installments in accordance with the Company’s payroll practices (disregarding, however, any past or future changes in the Company’s payroll practices that would result in an impermissible change in the timing of payments under this provision for purposes of Section 409A), during the two (2)-year period beginning on the first payroll date that follows the thirtieth (30th) day following the Date of Termination, (ii) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iii) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall vest, as of the Date of Termination, in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iv)  in the event that such termination of employment occurs during a Change in Control Period, all unvested performance-based restricted share awards held by the Executive immediately prior to the Date

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of Termination for which the applicable performance period remains ongoing shall, as of the Date of Termination, fully vest (in the amount that would have vested had the applicable performance period been completed and maximum performance levels achieved), and (v) during the two (2)-year period beginning on the Date of Termination (such period, the  “Continuation Period”), the Executive and her eligible dependents, if applicable, shall be entitled to continued participation in the Company’s medical, health, disability and similar welfare benefit plans in which she and her eligible dependents, if applicable, were participating on the Date of Termination at the Company’s sole expense; providedthat if such continued participation is not permitted under such plans, the Company shall provide to the Executive and her eligible dependents, if applicable, substantially similar benefits during the Continuation Period;  provided,  further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive.  In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment.  The COBRA health continuation period under Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date.  The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Company’s group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations.  The Health Payment and the Health Gross-up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations. If the Executive dies after the Executive becomes entitled to any payments pursuant to Section 4.3, this Section 5.2 or Section 5.3, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to the Executive, to such person as the Executive shall designate in a written notice to the Company (or, if no such person is designated, to her estate).  Notwithstanding the foregoing, if, during a Change in Control Period, (i) the Executive’s employment is terminated by the Company without Cause pursuant to Section 4.1(d) or due to Disability pursuant to Section 4.1(b) or (ii) the Executive resigns from her employment for Good Reason pursuant to Section 4.1(e), then the amount provided for in (i) above shall be paid to the Executive in one lump sum payment on the thirtieth (30th) day following the Date of Termination.

5.3 Termination Due to Expiration of the Term.  If the Executive’s employment is terminated due to expiration of the Term pursuant to Section 2.2,  (i) the Company shall pay the Executive an amount equal to the sum of (x) the Annual Base Salary as in effect immediately prior to the Date of Termination,  and (y) the greater of (I) the Annual Bonus earned by the Executive for the Fiscal Year immediately prior to the Fiscal Year in which the Date of Termination occurs, and (II) 85% of the Annual Base Salary (prorated based on the number days that the Executive is employed by the Company during the Fiscal Year in which the Date of Termination occurs),payable in equal installments in accordance with the Company’s payroll practices (disregarding, however, any past or future changes in the Company’s payroll practices that would result in an impermissible change in the timing of payments under this provision for purposes of Section 409A), during the one (1)-year period beginning on the first payroll date that

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follows March 31, 2021,  (ii) all unvested Equity Awards that, on and following the date of grant, were subject to only service-based vesting held by the Executive immediately prior to the Date of Termination shall, as of the Date of Termination, become vested and exercisable, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), (iii) all unvested performance-based restricted share awards held by the Executive immediately prior to the Date of Termination for which the applicable performance period has ended shall, as of the Date of Termination, vest in the amount determined based on the actual level of achievement of the performance targets, subject to the terms and conditions of the applicable equity plan and equity award agreement(s) (other than those relating to vesting or forfeiture upon termination of employment), and (iv) during the two (2)-year period beginning on March 1, 2021 (such period, the “Post-Expiration Continuation Period”), the Executive and her eligible dependents, if applicable, shall be entitled to continued participation in the Company’s medical, health, disability and similar welfare benefit plans in which she and her eligible dependents, if applicable, were participating on March 1, 2021 at the Company’s sole expense; provided that if such continued participation is not permitted under such plans, the Company shall provide to the Executive and her eligible dependents, if applicable, substantially similar benefits during the Post-Expiration Continuation Period; provided,  further, that in order to receive such continued coverage, the Executive shall be required to pay to the Company at the same time that premium payments are due for the month an amount equal to the full monthly premium payments required for such coverage. The Company shall reimburse to the Executive monthly the Health Payment no later than the next payroll date of the Company that occurs after the date the premium for the month is paid by the Executive.  In addition, on each date on which the monthly Health Payments are made, the Company shall pay to the Executive the Health Gross-Up Payment.  The COBRA health continuation period under Section 4980B of the Code shall run concurrently with the period of continued health coverage following the termination date.  The Health Payment paid to the Executive during the period of time during which the Executive would be entitled to continuation coverage under the Company’s group health plan under COBRA is intended to qualify for the exception from deferred compensation as a medical benefit provided in accordance with the requirements of Section 1.409A-1(b)(9)(v)(B) of the Department of Treasury Regulations.  The Health Payment and the Health Gross-Up Payment shall be reimbursed to the Executive in a manner that complies with the requirements of Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations.  Notwithstanding the foregoing, if the Executive’s employment is terminated due to expiration of the Term pursuant to Section 2.2 during a Change in Control Period, then the amount provided for in (i) above shall be paid to the Executive in one lump sum payment on the thirtieth (30th) day following the Date of Termination.   

5.4 Section 409A.  Notwithstanding any provision to the contrary in this Agreement, no cash payments or other benefits described in Sections 5.2 or 5.3 will be paid or made available to the Executive unless the Executive’s termination of employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations, and unless, on or prior to the thirtieth (30th) day following the Date of Termination, (a) the Executive shall have executed a waiver and release of claims in the form attached as Exhibit A hereto, and (b) such release shall not have been revoked by the Executive prior to such thirtieth (30th) day.  Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed at the time of her separation from service to be a

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“specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion of the Executive’s termination benefits shall not be provided to the Executive prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in the Department of Treasury Regulations issued under Section 409A of the Code) or (ii) the date of the Executive’s death.  Upon the expiration of the applicable deferral period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to Section5.2 or 5.3 shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.  For the avoidance of doubt, no payments or benefits shall be payable under Section 5.2 in the event of the Executive’s termination of employment due to expiration of the Term under Section 2.2. 

5.5 Survival.  The expiration or termination of the Term shall not impair the rights or obligations of any party hereto that shall have accrued prior to such expiration or termination or that by their express terms survive the expiration or termination of the Term.

ARTICLE VI.

Non-Competition; Non-Solicitation

6.1 Non-Competition Obligation.  The Executive shall not, at any time during the period commencing on the Effective Date and ending on the second (2nd) anniversary of the Date of Termination (the “Restricted Period”), directly or indirectly, enter the employ of, or render any services to, any Person engaged in any business in North America or anywhere in the world in which the Company conducts business as of the Date of Termination (a) which derives more than fifteen percent (15%) of its consolidated revenues from the marketing or distribution of products sold by the Company, (b) which participates in the manufacturing or design of modular or component shelving or drawer systems or other material products of Elfa International AB and its subsidiaries, or (c) which, as of the Date of Termination, the Board (including any committee thereof) or senior management of the Company has taken active steps to engage in or acquire (any such business, a “Competitive Business”); and the Executive shall not become interested in any such Competitive Business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any other relationship or capacity; provided,  however, that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from working for another retail organization, provided that the Executive is not engaged in any aspect of the business of such retail organization (including, but not limited to, starting any division or other segment of such retail organization in a Competitive Business), whether in a supervisory, consultative or other capacity, relating to a Competitive Business.  For the avoidance of doubt, the Executive’s position as a senior executive officer of a retail organization, of which a Competitive Businessis an immaterial aspect of its general retail business, shall not be prohibited by, or constitute a violation of, the terms of this Section 6.1;  provided that the Executive does not participate in any day-to-day operations or in any strategic or other decisions relating to the conduct of such retail organization as it relates to a Competitive Businessand, to the extent necessary, has delegated such responsibilities to other management personnel of such retail organization.  It is expressly agreed that nothing contained in this Section 6.1 shall be deemed to prohibit the Executive from acquiring, solely as an

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investment, up to five percent (5%) of the outstanding shares of capital stock of any public corporation or working for a retail organization, provided that the Executive is not, directly or indirectly, engaged in a business relating to a Competitive Business.

6.2 Non-Solicitation Obligation.  The Executive shall not, at any time during the Restricted Period,  for her benefit or for the benefit of any other Person, solicit the employment or services of, or hire (or cause any Person to so solicit or hire), any person who upon the termination of the Executive’s employment hereunder, or within twelve (12) months prior thereto, was (a) employed by the Company or (b) a consultant to the Company. The restrictions in this Section 6.2 shall not apply to (i) general solicitations that are not specifically directed to employees of or consultants to the Company, (ii) at the request of a former employee, serving as an employment reference for such former employee or (iii) solicitations or hirings of former employees of the Company whose employment was terminated by the Company without “Cause” or who terminated their employment for “Good Reason” (as such terms are defined in the applicable employment agreement or, in the absence of such an agreement, as determined by a majority of the Board in its good faith discretion).

6.3 Definition.  As used in this Article VI, the term “Company” shall include the Company (as defined in the preamble hereof) and any of its direct or indirect subsidiaries.

6.4 Amendment.  The provisions contained in Sections 6.1 and 6.2 may be altered and/or waived only with the prior written consent of a majority of the Board or the Compensation Committee.

ARTICLE VII.

Nondisclosure of Proprietary Information

7.1 Nondisclosure.  Except as required in the faithful performance of the Executive’s duties hereunder or pursuant to Section 7.3, the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, or use for her benefit or the benefit of any Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment (“Proprietary Information”), or deliver to any Person any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information.  The Executive’s obligation to maintain and not use, disseminate, disclose or publish, or use for her benefit or the benefit of any Person any Proprietary Information after the Date of Termination shall continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executive’s direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company.  The parties hereby stipulate and agree that as between them, the Proprietary Information identified herein is important, material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).    Notwithstanding anything herein to the contrary, during the Term and following the Date of Termination, each of

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the Executive and the Company shall retain the right to use the seven “Foundation Principles” described in the Company’s news release, dated as of January 10, 2005 (with “Communication Is Leadership” having been added in 2008), without payment of royalties or other consideration, and nothing in this Agreement shall have any effect on the ownership of such Foundation Principles as of the Effective Date. 

7.2 Return of Proprietary Information.  Upon termination of the Executive’s employment with the Company for any reason, the Executive shall promptly deliver to the Company all Proprietary Information in the Executive’s possession, including without limitation all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, marketing strategies, products or processes.  Notwithstanding anything to the contrary in this Section 7.2 or in Section 7.1, the Executive shall be entitled to retain and disclose to the Executive’s counsel, financial or other professional advisors and to the Executive’s immediate family (provided that such advisors and family members agree to the restrictions in Section 7.1 with respect to such information): (a) information showing the Executive’s equity awards or other compensation or relating to expense reimbursements, (b) copies of employee benefit and compensation plans, programs, agreements and other arrangements of the Company in which the Executive was a participant or covered and (c) compensation information that the Executive reasonably believes the Executive requires for the Executive’s personal tax preparation.

7.3 Response to Legal Process; Contents of Book.  Notwithstanding Section 7.1, (a) the Executive may respond to a lawful and valid subpoena or other legal process relating to the Company or its business or operations; provided that the Executive shall: (i) give the Company the earliest possible notice thereof; (ii) as far in advance of the return date as possible, at the Company’s sole cost and expense, make available to the Company and its counsel the documents and other information sought; and (iii) at the Company’s sole cost and expense, assist such counsel in resisting or otherwise responding to such process, (b) the Executive’s reporting of possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation shall not violate or constitute a breach of this Agreement, and (c) the disclosure of information, including Proprietary Information, in the Book (as defined in the Indemnification and Hold Harmless Agreement by and between Parent and Kip Tindell, dated as of June 13, 2012) authored by Kip Tindell shall not violate or constitute a breach of this Agreement.

7.4 Non-Disparagement. 

(a) The Executive agrees not to disparage the Company, any of its products or practices, or any of its directors, officers, agents, representatives, members or Affiliates, either orally or in writing, at any time; provided that the Executive may confer in confidence with her legal representatives and make truthful statements as required by law.

(b) The Company agrees to instruct the members of the Board and the executive officers of the Company not to disparage the Executive, either orally or in writing, at

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any time; provided that the Company may confer in confidence with its legal representatives and make truthful statements as required by law.

7.5 Company Definition. As used in this Article VII, the term “Company” shall include the Company (as defined in the preamble hereof), its parent, related entities, and any of its direct or indirect subsidiaries.

7.6 Exceptions.  The Executive acknowledges that the Company has provided the Executive with the following notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act of 2016:  (i) the Executive shall not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of Proprietary Information that is made in confidence to a U.S. federal, state or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law; (ii) the Executive shall not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of Proprietary Information that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (iii) if the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Proprietary Information to the Executive’s attorney and use the Proprietary Information in the court proceeding, if the Executive files any document containing the Proprietary Information under seal, and does not disclose the Proprietary Information, except pursuant to court order.  However, under no circumstance will the Executive be authorized to disclose any information covered by attorney-client privilege or attorney work product of the Company without prior written consent of the Company’s General Counsel or other officer designated by the Company. 

ARTICLE VIII.

REMEDIES

8.1 Acknowledgement; Blue Pencil.  The Executive acknowledges and agrees that the benefits and payments provided under this Agreement represent adequate consideration for the Executive’s agreement to be bound by the restrictive covenants set forth in Articles VI and VII, and that the Executive’s agreement to be bound by such restrictive covenants is a material inducement to the Company’s entering into this Agreement.  In the event, however, that any restrictive covenant set forth in Articles VI or VII shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it is the intention of the Executive and Company that it will be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

8.2 Injunctive Relief.  The Executive acknowledges and agrees that a breach of the covenants contained in Articles VI or VII will cause irreparable damage to Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate.  Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Articles VI or VII, in addition to any other remedy which may be available at law or in equity, the Company will be entitled to

14

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specific performance and injunctive relief without any requirement to post a bond.  The Company acknowledges and agrees that a breach of the covenants contained in Section 7.4(b) will cause irreparable damage to the Executive, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate.  Accordingly, the Company agrees that in the event of a breach of any of the covenants contained in Section 7.4(b), in addition to any other remedy which may be available at law or in equity, the Executive will be entitled to specific performance and injunctive relief without any requirement to post a bond.

ARTICLE IX.

MISCELLANEOUS

9.1 Assignment.  The Company may assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise.  The Executive may not assign her rights or obligations under this Agreement to any individual or entity.  This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.

9.2 Governing Law.  This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of New York, without reference to the principles of conflicts of law of New York or any other jurisdiction, and where applicable, the laws of the United States.

9.3 Notices.  Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows:

(a) If to the Company:

The Container Store Group, Inc.

500 Freeport Parkway

Coppell, TX 75019

ATTN:  General Counsel

with a copy to:

Latham & Watkins LLP

885 Third Avenue

Suite 1000

New York, NY 10022

ATTN:  Howard Sobel; Bradd Williamson

(b)If to the Executive, to the address set forth in the Company’s records

15

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or at any other address as any party shall have specified by notice in writing to the other party.

9.4 Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.

9.5 Entire Agreement.  As of the Effective Date, the terms of this Agreement and the other agreements and instruments contemplated hereby or referred to herein are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of (and supersede) any prior or contemporaneous agreement (including without limitation the Prior Agreement and any term sheet or similar agreement entered into between the Company and the Executive).  The parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.

9.6 Amendments; Waivers.  This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a duly authorized officer of Company and approved by a majority of the Board, which expressly identifies the amended provision of this Agreement.  By an instrument in writing similarly executed and approved by a majority of the Board, the Executive or a duly authorized officer of the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform, provided,  however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or conform.  No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

9.7 No Inconsistent Action.  The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement.  Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.

9.8 Construction.  This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning.  Any presumption or principle that the language is to be construed against any party shall not apply.  The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation.  Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary.  Also, unless the context clearly indicates to the contrary: (a) the plural includes the singular and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; (e) “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any

16

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variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.

9.9 Arbitration.  Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before an arbitrator in New York, New York in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitration award in any court having jurisdiction. Notwithstanding the foregoing, (a) the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Articles VI or VII of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without requiring the Company to post a bond, and (b) the Executive shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7.4(b) of this Agreement and the Company hereby consents that such restraining order or injunction may be granted without requiring the Executive to post a bond.  Only individuals who are: (i) lawyers engaged full-time in the practice of law and (ii) on the AAA register of arbitrators shall be selected as an arbitrator.  Within twenty (20) days of the conclusion of the arbitration hearing, the arbitrator shall prepare written findings of fact and conclusions of law.  It is mutually agreed that the written decision of the arbitrator shall be valid, binding, final and non-appealable, provided,  however, that the parties hereto agree that the arbitrator shall not be empowered to award punitive damages against any party to such arbitration.  The arbitrator shall require the non‑prevailing party to pay the arbitrator’s full fees and expenses or, if in the arbitrator’s opinion there is no prevailing party, the arbitrator’s fees and expenses shall be borne equally by the parties thereto.  In the event action is brought to enforce the provisions of this Agreement pursuant to this Section 9.9, the non-prevailing parties shall be required to pay the reasonable attorney’s fees and expenses of the prevailing parties, except that if in the opinion of the court or arbitrator deciding such action there is no prevailing party, each party shall pay its own attorney’s fees and expenses.

9.10 Enforcement.  In the event any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect: (a) such provision shall be fully severable; (b) this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable provision had never comprised a portion of this Agreement; and (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such invalid, illegal or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such invalid, illegal or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in substance to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable.

9.11 Withholding.  The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.

9.12 Employee Acknowledgment.  The Executive acknowledges that she has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon

17

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any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on her own judgment.

9.13 Section 409A.    

(a) To the extent applicable, this Agreement shall be interpreted in accordance with Section 409A.  Notwithstanding any provision of this Agreement to the contrary, in the event that a majority of the Board determines that any amounts payable pursuant to this Agreement may be subject to Section 409A, the Company may adopt such amendments to this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary or appropriate to: (i) exempt such payments from Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to such payments or (ii) comply with the requirements of Section 409A and thereby avoid the application of penalty taxes under Section 409A;  provided that no such amendments, policies, procedures or actions shall reduce the economic value to the Executive of this Agreement from the value of this Agreement (without taking into account the effect of Section 409A) prior to the adoption or taking of such amendments, policies, procedures or actions.  No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its Affiliates, employees or agents.

(b) To the extent that any installment payments under this Agreement are deemed to constitute “nonqualified deferred compensation” within the meaning of Section 409A, for purposes of Section 409A (including, without limitation, for purposes of Section 1.409A-2(b)(2)(iii) of the Department of Treasury Regulations), each such payment that the Executive may be eligible to receive under this Agreement shall be treated as a separate and distinct payment.

(c) To the extent that any reimbursements or corresponding in-kind benefits provided to the Executive under this Agreement (including, without limitation, the Health Payment and the Health Gross-Up Payment) are deemed to constitute “deferred compensation” within the meaning of Section 409A to the Executive, such amounts shall be paid or reimbursed reasonably promptly, but not later than December 31 of the year following the year in which the expense was incurred, and in any event in accordance with Section 1.409A-3(i)(1)(iv) of the Department of Treasury Regulations.  The amount of any such payments or expense reimbursements in one calendar year shall not affect the expenses or in-kind benefits eligible for payment or reimbursement in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and the Executive’s right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit.

9.14 Cooperation.  During the Term hereof and thereafter, the Executive shall cooperate with the Company in any disputes with third parties, internal investigations or administrative, regulatory or judicial proceedings as reasonably requested by the Company  and at the Company’s sole cost and expense (including, without limitation, the Executive being available to the Company upon reasonable notice for interviews and factual investigations, at

18

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times and on schedules that are reasonably consistent with the Executive’s other permitted activities and commitments).

9.15 Indemnification.  To the maximum extent allowed under applicable law and the Company’s By-Laws and other corporate organizational documents, in the event that the Executive is a party to any threatened, pending or completed action, suit or proceeding (other than any action, suit or proceeding arising under or related to this Agreement or any other compensation agreement), whether civil, criminal, administrative or investigative, by reason of the fact that she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, the Company shall indemnify the Executive and hold her harmless against all expenses (including reasonable and documented attorneys’ fees and costs incurred by the Executive), judgments, fines and amounts paid in settlement (subject to the Company’s consent, with such consent not to be unreasonably withheld) actually and reasonably incurred by her, as and when incurred, in connection with such action, suit or proceeding;  provided that the Executive acted in good faith and in a manner she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe her conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Executive did not act in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company, or that, with respect to any criminal action or proceeding, the Executive had reasonable cause to believe that her conduct was unlawful.  The provisions of this Section 9.15 shall not be deemed exclusive of any other rights of indemnification to which the Executive may be entitled or which may be granted to her, and it shall be in addition to any rights of indemnification to which she may be entitled under any policy of insurance.  These provisions shall continue in effect after Executive has ceased to be an officer or director of the Company.

9.16 No Mitigation.  The Executive shall have no obligation to mitigate any payments due hereunder.

[Signature Pages Follow]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

THE CONTAINER STORE GROUP, INC.

By:	/s/ Melissa Reiff
	Name: Melissa Reiff
	Title: Chief Executive Officer

[Second Amended and Restated Employment Agreement with Jodi Taylor]

US-DOCS\111599088.1

EXECUTIVE

By:	/s/ Jodi Taylor
	Jodi Taylor

[Second Amended and Restated Employment Agreement with Jodi Taylor]

US-DOCS\111599088.1

EXHIBIT A

Form of Release Agreement

Jodi Taylor (the “Executive”) agrees for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, hereby forever to release, discharge, and covenant not to sue The Container Store Group, Inc., a Delaware corporation (the “Company”), the Company’s past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past and present directors, shareholders, officers, general or limited partners, employees, agents, and attorneys, and agents and representatives of such entities, and employee benefit plans in which the Executive is or has been a participant by virtue of her employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date this release (the “Release”) is executed, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (a) Executive’s employment with the Company or the termination thereof or (b) Executive’s status as a holder of any securities of the Company based on any events or circumstances arising or occurring on or prior to the date this Release is executed, and any and all claims based on, relating to, or arising under federal, state, or local laws, including without limitation claims of discrimination, harassment, retaliation, wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, liability in tort, or for violation of public policy, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934 (the “Exchange Act”), the Texas Commission on Human Rights Act, the Texas Anti-Retaliation Act, the Texas Labor Code, the Sarbanes-Oxley Act, and similar state or local statutes, ordinances, and regulations;  provided,  however, notwithstanding anything to the contrary set forth herein, that this general release shall not extend to (i) benefit claims under employee pension benefit plans in which the Executive is a participant by virtue of her employment with the Company or to benefit claims under employee welfare benefit plans (e.g., claims for medical care, death, or onset of disability), (ii) accrued and vested benefits under applicable employee benefit plans, or the Executive’s right to continue or convert coverage under certain employee benefit plans, in accordance with the terms of those plans and applicable law; (iii) any obligation under this Release, or under that certain Second Amended and Restated Employment Agreement entered into on and effective as of November 5, 2019, by and between the Company and the Executive, assumed by any party thereto; and (iv) reporting possible violations of federal law or regulation to, otherwise communicating with or participating in any investigation or proceeding that may be conducted by, or providing documents and other information, without notice to the Company, to, any federal, state or local governmental authority, including in accordance with the provisions of and rules promulgated under Section

US-DOCS\111599088.1

21F of the Exchange Act or Section 806 of the Sarbanes-Oxley Act, as each may have been amended from time to time, or any other whistleblower protection provisions of state or federal law or regulation.    Pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

The Executive understands that this Release includes a release of claims arising under the Age Discrimination in Employment Act (ADEA).  The Executive understands and warrants that she has been given a period of twenty-one (21) days to review and consider this Release and such period shall not be affected or extended by any changes, whether material or immaterial, that might be made to this Release.  The Executive is hereby advised to consult with an attorney prior to executing the Release.  By her signature below, the Executive warrants that she has had the opportunity to do so and to be fully and fairly advised by that legal counsel as to the terms of this Release.  The Executive further warrants that she understands that she may use as much or all of her twenty-one (21)-day period as she wishes before signing, and warrants that she has done so.

The Executive further warrants that she understands that she has seven (7) days after signing this Release to revoke the Release by notice in writing to _____________________________________________________________________________.  This Release shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7)-day revocation period without _____________ having received such revocation, but not before such time.

*  *  *  *  *

The Executive acknowledges and agrees that this Release is a legally binding document and the Executive’s signature will commit the Executive to its terms.  Executive acknowledges and agrees that the Executive has carefully read and fully understands all of the provisions of this Release and that the Executive voluntarily enters into this Release by signing below.  Upon execution, the Executive agrees to deliver a signed copy of this Release to .

____________________________________

Jodi Taylor

Date:  _______________________________

US-DOCS\111599088.1

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Melissa Reiff, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 5, 2020	/s/ Melissa Reiff
	Melissa Reiff
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Jodi Taylor, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 5, 2020	/s/ Jodi L. Taylor
	Jodi L. Taylor
	Chief Financial Officer and Chief Administrative Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Melissa Reiff,  Chief Executive Officer of The Container Store Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Quarterly Report on Form 10-Q of the Company for the period ended December 28, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 5, 2020	/s/ Melissa Reiff
	Melissa Reiff
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jodi Taylor, Chief Financial Officer of The Container Store Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Quarterly Report on Form 10-Q of the Company for the period ended December 28, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 5, 2020	/s/ Jodi L. Taylor
	Jodi L. Taylor
	Chief Financial Officer and Chief Administrative Officer

XML

Consolidated statements of shareholders' equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended		12 Months Ended
	Dec. 28, 2019	Sep. 28, 2019	Jun. 29, 2019	Dec. 29, 2018	Sep. 29, 2018	Jun. 30, 2018	Dec. 28, 2019	Dec. 29, 2018	Mar. 30, 2019	Mar. 31, 2018
Consolidated statements of shareholders' equity
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Unrealized gain (loss) on financial instruments, taxes	$ 846	$ (981)	$ (18)	$ 216	$ 154	$ (566)	$ (154)	$ (196)
Pension liability adjustment, net of $0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0

XML

Consolidated statements of comprehensive income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018	Dec. 28, 2019	Dec. 29, 2018
Consolidated statements of comprehensive income
Net income	$ 2,412	$ 9,321	$ 1,959	$ 5,798
Unrealized gain (loss) on financial instruments, net of tax provision (benefit) of $846, $216, ($154) and ($196)	2,414	660	(515)	(687)
Pension liability adjustment, net of $0	(111)	(3)	12	132
Foreign currency translation adjustment	3,321	(136)	(136)	(4,775)
Comprehensive income	$ 8,036	$ 9,842	$ 1,320	$ 468

XML

Document and Entity Information - shares	9 Months Ended
	Dec. 28, 2019	Jan. 31, 2020
Document and Entity Information
Entity Registrant Name	Container Store Group, Inc.
Entity Central Index Key	0001411688
Current Fiscal Year End Date	--03-28
Document Fiscal Year Focus	2019
Document Type	10-Q
Document Period End Date	Dec. 28, 2019
Entity Interactive Data Current	Yes
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Common Stock Outstanding		49,368,117
Document Fiscal Period Focus	Q3
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false

XML

Leases (Tables)

9 Months Ended

Dec. 28, 2019

Leases

Schedule of components of lease costs

The components of lease costs for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Operating lease costs	$	22,842	$	67,840
Variable lease costs		270		903
Total lease costs	$	23,112	$	68,743

Schedule of supplemental cash flow information

Supplemental cash flow information related to our leases for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Cash paid for amounts included in the measurement of operating lease liabilities	$	22,800	$	67,321
Additions to right-of-use assets	$	2,842	$	41,976

Schedule of weighted average remaining operating lease term and incremental borrowing rate

Weighted average remaining operating lease term and incremental borrowing rate as of December 28, 2019 were as follows:

Weighted average remaining lease term (years)	7.2
Weighted average incremental borrowing rate	8.8	%

Schedule of future minimum lease payments under our operating lease liabilities

	Operating leases (1)
Within 1 year (remaining)	$	23,280
2 years		92,567
3 years		79,184
4 years		68,985
5 years		61,050
Thereafter		201,683
Total lease payments	$	526,749
Less amount representing interest		(143,050)
Total lease liability	$	383,699
Less current lease liability		(63,163)
Total noncurrent lease liability	$	320,536

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Segment reporting (Tables)

9 Months Ended

Dec. 28, 2019

Segment reporting

Schedule of segment reporting

Thirteen Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	211,971	$	16,686	$	—	$	228,657
Intersegment sales		—		21,385		(21,385)		—
Adjusted EBITDA		17,924		6,118		(2,035)		22,007
Interest expense, net		5,056		78		—		5,134
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirteen Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	204,899	$	16,738	$	—	$	221,637
Intersegment sales		—		22,369		(22,369)		—
Adjusted EBITDA		19,014		4,994		(2,192)		21,816
Interest expense, net		5,957		51		—		6,008
Assets (1)		671,865		105,491		(5,334)		772,022

Thirty-Nine Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	628,282	$	46,327	$	—	$	674,609
Intersegment sales		—		53,800		(53,800)		—
Adjusted EBITDA		46,820		14,155		(5,899)		55,076
Interest expense, net		15,960		285		—		16,245
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirty-Nine Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	593,896	$	48,017	$	—	$	641,913
Intersegment sales		—		47,414		(47,414)		—
Adjusted EBITDA		50,345		10,432		(2,223)		58,554
Interest expense, net		21,097		196		—		21,293
Assets (1)		671,865		105,491		(5,334)		772,022

(1) Tangible assets in the Elfa column are located outside of the United States.

Summary of reconciliation of Adjusted EBITDA by segment to income before taxes

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
		2019		2018	2019		2018
Income (loss) before taxes	$	4,298	$	5,395	$	3,387	$	(191)
Add:
Depreciation and amortization		9,689		8,887		28,137		27,352
Interest expense, net		5,134		6,008		16,245		21,293
Pre-opening costs (a)		2,482		691		5,988		1,918
Non-cash lease expense (b)		(355)		101		(1,532)		(1,117)
Stock-based compensation (c)		799		632		2,575		1,987
Loss on extinguishment of debt (d)		—		—		—		2,082
Foreign exchange (gains) losses (e)		(37)		22		(98)		69
Optimization Plan implementation charges (f)		—		—		—		4,864
Elfa France closure (g)		(1)		—		402		—
Other adjustments (h)		(2)		80		(28)		297
Adjusted EBITDA	$	22,007	$	21,816	$	55,076	$	58,554

(a) Non-capital expenditures associated with opening new stores, relocating stores, and net costs associated with opening the second distribution center, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. In the thirteen and thirty-nine weeks ended December 28, 2019, lease expenses associated with the opening of the second distribution center were excluded from Non-cash lease expense and included in Pre-opening costs.

(c) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(d) Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in September 2018, which we do not consider in our evaluation of our ongoing operations.

(e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(f) Charges incurred to implement our four-part optimization plan to drive improved sales and profitability, launched during fiscal 2017 (the “Optimization Plan”), which include certain consulting costs recorded in SG&A in the first quarter of fiscal 2018, which we do not consider in our evaluation of ongoing performance.

(g) Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

(h) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

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Description of business and basis of presentation

9 Months Ended

Dec. 28, 2019

Description of business and basis of presentation

Description of business and basis of presentation

The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

December 28, 2019

1. Description of business and basis of presentation

These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019, filed with the Securities and Exchange Commission (“SEC”) on May 30, 2019 (the “2018 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements, with the exception of lease accounting as discussed further below. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

All references herein to “fiscal 2019” refer to the 52-week fiscal year ending March 28, 2020, “fiscal 2018” refer to the 52-week fiscal year ended March 30, 2019, and “fiscal 2017” refer to the 52-week fiscal year ended March 31, 2018.

Description of business

The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”).  On November 6, 2013, the Company completed its initial public offering (the “IPO”).  As the majority shareholder, LGP retains a controlling interest in the Company.  As of December 28, 2019, The Container Store, Inc. (“TCS”) operates 93 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers (including business customers), through its website and call center. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors.  elfa® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirty-nine weeks ended December 28, 2019 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of Our Annual elfa® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to revise lease accounting guidance. The update requires most leases to be recorded on the balance sheet as a lease liability, with a corresponding right-of-use asset, whereas these leases previously had an off-balance sheet classification. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients; however, the Company did not elect the hindsight practical expedient. Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $352,059 at transition. However, the adoption of this standard did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows. See Note 3 for further discussion on leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which is intended to improve and simplify hedge accounting and improve the disclosures of hedging arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, the guidance on share-based payments to nonemployees would be aligned with the requirements for share-based payments granted to employees, with certain exceptions. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In July 2016, the FASB issued ASU 2016-13, Financial Instruments –  Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement are not affected by the new guidance. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

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Income taxes

9 Months Ended

Dec. 28, 2019

Income taxes

Income taxes

5.  Income taxes

The provision for income taxes in the thirteen weeks ended December 28, 2019 was $1,886 as compared to a benefit of $3,926 in the thirteen weeks ended December 29, 2018. The effective tax rate for the thirteen weeks ended December 28, 2019 was 43.9%, as compared to -72.8% in the thirteen weeks ended December 29, 2018. During the thirteen weeks ended December 28, 2019, the effective tax rate rose above the U.S. statutory rate of 21% primarily due to tax related to stock-based compensation, U.S. state income taxes, and the impact of the global intangible low-taxed income (“GILTI”) provision.  During the thirteen weeks ended December 29, 2018,  the effective tax rate fell below the U.S. statutory rate primarily due to the finalization of the one-time transition tax on foreign earnings related to the Tax Act enacted in fiscal 2017.

The provision for income taxes in the thirty-nine weeks ended December 28, 2019 was $1,428 as compared to a benefit of $5,989 in the thirty-nine weeks ended December 29, 2018. The effective tax rate for the thirty-nine weeks ended December 28, 2019 was 42.2%, as compared to 3135.6% in the thirty-nine weeks ended December 29, 2018. During the thirty-nine weeks ended December 28, 2019, the effective tax rate rose above the U.S. statutory rate of 21% primarily due to tax related to stock-based compensation, U.S. state income taxes, and the impact of the GILTI provision. During the thirty-nine weeks ended December 29, 2018,  the effective tax rate rose above the U.S. statutory rate due to the finalization of the one-time transition tax on foreign earnings and other Tax Act items, and recognition of a $604 tax benefit for the remeasurement of deferred tax balances as a result of a change in the Swedish tax rate, combined with a year-to-date pre-tax loss.

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Fair value measurements

9 Months Ended

Dec. 28, 2019

Fair value measurements

Fair value measurements

9.  Fair value measurements

Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:

· Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

· Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

As of December 28, 2019,  March 30, 2019 and December 29, 2018, the Company held certain items that are required to be measured at fair value on a recurring basis. These included the nonqualified retirement plan, which consists of investments purchased by employee contributions to retirement savings accounts. The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.

The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements:

			December 28,		March 30,		December 29,
Description		Balance Sheet Location	2019		2019		2018
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,249	$	5,810	$	5,156
Foreign currency forward contracts	Level 2	Other current assets		—		—		35
Total assets			$	6,249	$	5,810	$	5,191

The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (Level 2 valuations). As of December 28, 2019,  March 30, 2019 and December 29, 2018, the estimated fair value of the Company’s long-term debt, including current maturities, was $299,579,  $274,753, and $292,961, respectively.

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Commitments and contingencies (Details) $ in Thousands	Dec. 28, 2019 USD ($)
Standby letters of credit
Commitments and contingencies
Amount outstanding	$ 4,276

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Weighted average remaining operating lease term and incremental borrowing rate (Details)	Dec. 28, 2019
Leases
Weighted average remaining lease term (years)	7 years 2 months 12 days
Weighted average incremental borrowing rate	8.80%

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Segment reporting

9 Months Ended

Dec. 28, 2019

Segment reporting

Segment reporting

10.  Segment reporting

The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business.

The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance.

Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

Thirteen Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	211,971	$	16,686	$	—	$	228,657
Intersegment sales		—		21,385		(21,385)		—
Adjusted EBITDA		17,924		6,118		(2,035)		22,007
Interest expense, net		5,056		78		—		5,134
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirteen Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	204,899	$	16,738	$	—	$	221,637
Intersegment sales		—		22,369		(22,369)		—
Adjusted EBITDA		19,014		4,994		(2,192)		21,816
Interest expense, net		5,957		51		—		6,008
Assets (1)		671,865		105,491		(5,334)		772,022

Thirty-Nine Weeks Ended December 28, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	628,282	$	46,327	$	—	$	674,609
Intersegment sales		—		53,800		(53,800)		—
Adjusted EBITDA		46,820		14,155		(5,899)		55,076
Interest expense, net		15,960		285		—		16,245
Assets (1)		1,049,889		119,321		(26,928)		1,142,282

Thirty-Nine Weeks Ended December 29, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	593,896	$	48,017	$	—	$	641,913
Intersegment sales		—		47,414		(47,414)		—
Adjusted EBITDA		50,345		10,432		(2,223)		58,554
Interest expense, net		21,097		196		—		21,293
Assets (1)		671,865		105,491		(5,334)		772,022

(1) Tangible assets in the Elfa column are located outside of the United States.

A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
		2019		2018	2019		2018
Income (loss) before taxes	$	4,298	$	5,395	$	3,387	$	(191)
Add:
Depreciation and amortization		9,689		8,887		28,137		27,352
Interest expense, net		5,134		6,008		16,245		21,293
Pre-opening costs (a)		2,482		691		5,988		1,918
Non-cash lease expense (b)		(355)		101		(1,532)		(1,117)
Stock-based compensation (c)		799		632		2,575		1,987
Loss on extinguishment of debt (d)		—		—		—		2,082
Foreign exchange (gains) losses (e)		(37)		22		(98)		69
Optimization Plan implementation charges (f)		—		—		—		4,864
Elfa France closure (g)		(1)		—		402		—
Other adjustments (h)		(2)		80		(28)		297
Adjusted EBITDA	$	22,007	$	21,816	$	55,076	$	58,554

(a) Non-capital expenditures associated with opening new stores, relocating stores, and net costs associated with opening the second distribution center, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. In the thirteen and thirty-nine weeks ended December 28, 2019, lease expenses associated with the opening of the second distribution center were excluded from Non-cash lease expense and included in Pre-opening costs.

(c) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(d) Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in September 2018, which we do not consider in our evaluation of our ongoing operations.

(e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(f) Charges incurred to implement our four-part optimization plan to drive improved sales and profitability, launched during fiscal 2017 (the “Optimization Plan”), which include certain consulting costs recorded in SG&A in the first quarter of fiscal 2018, which we do not consider in our evaluation of ongoing performance.

(g) Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

(h) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

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Detail of certain balance sheet accounts

9 Months Ended

Dec. 28, 2019

Detail of certain balance sheet accounts

Detail of certain balance sheet accounts

2.  Detail of certain balance sheet accounts

	December 28,		March 30,		December 29,
	2019		2019		2018
Accounts receivable, net:
Trade receivables, net	$	17,127	$	16,730	$	15,150
Credit card receivables		10,718		7,244		10,407
Other receivables		1,593		1,594		3,992
	$	29,438	$	25,568	$	29,549
Inventory:
Finished goods	$	134,487	$	103,774	$	110,769
Raw materials		4,490		4,282		4,762
Work in progress		602		594		475
	$	139,579	$	108,650	$	116,006
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	22,270	$	19,771	$	21,406
Unearned revenue		13,579		10,744		10,941
Accrued transaction and property tax		12,348		12,249		9,767
Gift cards and store credits outstanding		10,180		8,777		9,562
Accrued lease liabilities		—		4,882		4,793
Accrued interest		1,540		209		1,844
Other accrued liabilities		7,741		10,531		9,462
	$	67,658	$	67,163	$	67,775

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets provided above. Unearned revenue was $10,744 as of March 30, 2019, and $10,382 was subsequently recognized into revenue for the thirty-nine weeks ended December 28, 2019.  Gift cards and store credits outstanding was $8,777 as of March 30, 2019, and $2,523 was subsequently recognized into revenue for the thirty-nine weeks ended December 28, 2019. See Note 10 for disaggregated revenue disclosures.

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Commitments and contingencies

9 Months Ended

Dec. 28, 2019

Commitments and contingencies

Commitments and contingencies

6.  Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $4,276 as of December 28, 2019.

The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows on an individual basis or in the aggregate.

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Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018	Dec. 28, 2019	Dec. 29, 2018
Income taxes
Provision (benefit) for income taxes	$ 1,886	$ (3,926)	$ 1,428	$ (5,989)
U.S. federal corporate tax rate	21.00%		21.00%
Effective income tax rate (as a percent)	43.90%	(72.80%)	42.20%	3135.60%

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Supplemental cash flow information (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 28, 2019	Dec. 28, 2019
Leases
Cash paid for amounts included in the measurement of operating lease liabilities	$ 22,800	$ 67,321
Additions to right-of-use assets	$ 2,842	$ 41,976

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Consolidated statements of operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018	Dec. 28, 2019	Dec. 29, 2018
Consolidated statements of operations
Net sales	$ 228,657	$ 221,637	$ 674,609	$ 641,913
Cost of sales (excluding depreciation and amortization)	94,292	91,580	283,633	266,510
Gross profit	134,365	130,057	390,976	375,403
Selling, general, and administrative expenses (excluding depreciation and amortization)	111,972	108,688	334,281	320,949
Stock-based compensation	799	632	2,575	1,987
Pre-opening costs	2,482	691	5,988	1,918
Depreciation and amortization	9,689	8,887	28,137	27,352
Other expenses		80	375	297
Other income	(1)
Gain on disposal of assets	(8)	(324)	(12)	(284)
Income from operations	9,432	11,403	19,632	23,184
Interest expense, net	5,134	6,008	16,245	21,293
Loss on extinguishment of debt				2,082
Income (loss) before taxes	4,298	5,395	3,387	(191)
Provision (benefit) for income taxes	1,886	(3,926)	1,428	(5,989)
Net income	$ 2,412	$ 9,321	$ 1,959	$ 5,798
Net income per common share—basic and diluted	$ 0.05	$ 0.19	$ 0.04	$ 0.12
Weighted-average common shares - basic (in shares)	48,313,671	48,139,582	48,987,525	48,139,132
Weighted-average common shares - diluted (in shares)	48,370,418	48,381,455	49,172,633	48,407,337

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Consolidated statements of shareholders' equity - USD ($) $ in Thousands	Common stock	Additional paid-in capital	Accumulated other comprehensive (loss) income	Retained deficit	Total
Common stock, par value (in dollars per share)					$ 0.01
Balance at the beginning of period at Mar. 31, 2018	$ 481	$ 861,263	$ (17,316)	$ (595,721)	$ 248,707
Balance (in shares) at Mar. 31, 2018	48,072,187
Increase (Decrease) in Stockholders' Equity
Net income (loss)				(6,764)	(6,764)
Stock-based compensation		586			586
Vesting of restricted stock awards		(1)			(1)
Vesting of restricted stock awards (in shares)	66,720
Taxes related to net share settlement of restricted stock awards		(122)			(122)
Foreign currency translation adjustment			(5,291)		(5,291)
Unrealized gain on financial instruments, net of tax provision			(1,785)		(1,785)
Pension liability adjustment, net of $0			153		153
Balance at the end of period at Jun. 30, 2018	$ 481	861,726	(24,239)	(602,078)	235,890
Balance (in shares) at Jun. 30, 2018	48,138,907
Balance at the beginning of period at Mar. 31, 2018	$ 481	861,263	(17,316)	(595,721)	248,707
Balance (in shares) at Mar. 31, 2018	48,072,187
Increase (Decrease) in Stockholders' Equity
Net income (loss)					5,798
Foreign currency translation adjustment					(4,775)
Unrealized gain on financial instruments, net of tax provision					(687)
Pension liability adjustment, net of $0					132
Balance at the end of period at Dec. 29, 2018	$ 481	863,119	(22,646)	(589,516)	$ 251,438
Balance (in shares) at Dec. 29, 2018	48,142,319
Common stock, par value (in dollars per share)					$ 0.01
Increase (Decrease) in Stockholders' Equity
Cumulative adjustment for adoption of ASC 606				407	$ 407
Balance at the beginning of period at Jun. 30, 2018	$ 481	861,726	(24,239)	(602,078)	235,890
Balance (in shares) at Jun. 30, 2018	48,138,907
Increase (Decrease) in Stockholders' Equity
Net income (loss)				3,241	3,241
Stock-based compensation		769			769
Foreign currency translation adjustment			652		652
Unrealized gain on financial instruments, net of tax provision			438		438
Pension liability adjustment, net of $0			(18)		(18)
Balance at the end of period at Sep. 29, 2018	$ 481	862,495	(23,167)	(598,837)	$ 240,972
Balance (in shares) at Sep. 29, 2018	48,138,907
Common stock, par value (in dollars per share)					$ 0.01
Increase (Decrease) in Stockholders' Equity
Net income (loss)				9,321	$ 9,321
Stock-based compensation		631			631
Vesting of restricted stock awards (in shares)	3,412
Taxes related to net share settlement of restricted stock awards		(7)			(7)
Foreign currency translation adjustment			(136)		(136)
Unrealized gain on financial instruments, net of tax provision			660		660
Pension liability adjustment, net of $0			(3)		(3)
Balance at the end of period at Dec. 29, 2018	$ 481	863,119	(22,646)	(589,516)	$ 251,438
Balance (in shares) at Dec. 29, 2018	48,142,319
Common stock, par value (in dollars per share)					$ 0.01
Common stock, par value (in dollars per share)					$ 0.01
Balance at the beginning of period at Mar. 30, 2019	$ 481	863,978	(26,132)	(573,634)	$ 264,693
Balance (in shares) at Mar. 30, 2019	48,142,319
Increase (Decrease) in Stockholders' Equity
Net income (loss)				(4,099)	(4,099)
Stock-based compensation		811			811
Vesting of restricted stock awards	$ 2	(56)			(54)
Vesting of restricted stock awards (in shares)	140,878
Taxes related to net share settlement of restricted stock awards		(347)			(347)
Foreign currency translation adjustment			333		333
Unrealized gain on financial instruments, net of tax provision			(128)		(128)
Pension liability adjustment, net of $0			(2)		(2)
Balance at the end of period at Jun. 29, 2019	$ 483	864,386	(25,929)	(577,733)	261,207
Balance (in shares) at Jun. 29, 2019	48,283,197
Balance at the beginning of period at Mar. 30, 2019	$ 481	863,978	(26,132)	(573,634)	264,693
Balance (in shares) at Mar. 30, 2019	48,142,319
Increase (Decrease) in Stockholders' Equity
Net income (loss)					1,959
Foreign currency translation adjustment					(136)
Unrealized gain on financial instruments, net of tax provision					(515)
Pension liability adjustment, net of $0					12
Balance at the end of period at Dec. 28, 2019	$ 483	866,132	(26,771)	(571,675)	$ 268,169
Balance (in shares) at Dec. 28, 2019	48,316,559
Common stock, par value (in dollars per share)					$ 0.01
Balance at the beginning of period at Jun. 29, 2019	$ 483	864,386	(25,929)	(577,733)	$ 261,207
Balance (in shares) at Jun. 29, 2019	48,283,197
Increase (Decrease) in Stockholders' Equity
Net income (loss)				3,646	3,646
Stock-based compensation		965			965
Vesting of restricted stock awards		4			4
Vesting of restricted stock awards (in shares)	23,215
Taxes related to net share settlement of restricted stock awards		(8)			(8)
Foreign currency translation adjustment			(3,790)		(3,790)
Unrealized gain on financial instruments, net of tax provision			(2,801)		(2,801)
Pension liability adjustment, net of $0			125		125
Balance at the end of period at Sep. 28, 2019	$ 483	865,347	(32,395)	(574,087)	$ 259,348
Balance (in shares) at Sep. 28, 2019	48,306,412
Common stock, par value (in dollars per share)					$ 0.01
Increase (Decrease) in Stockholders' Equity
Net income (loss)				2,412	$ 2,412
Stock-based compensation		799			799
Vesting of restricted stock awards (in shares)	10,147
Taxes related to net share settlement of restricted stock awards		(14)			(14)
Foreign currency translation adjustment			3,321		3,321
Unrealized gain on financial instruments, net of tax provision			2,414		2,414
Pension liability adjustment, net of $0			(111)		(111)
Balance at the end of period at Dec. 28, 2019	$ 483	$ 866,132	$ (26,771)	$ (571,675)	$ 268,169
Balance (in shares) at Dec. 28, 2019	48,316,559
Common stock, par value (in dollars per share)					$ 0.01

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Segment reporting - Reconciliation of EBITDA (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018	Dec. 28, 2019	Dec. 29, 2018
Segment reporting
Income (loss) before taxes	$ 4,298	$ 5,395	$ 3,387	$ (191)
Depreciation and amortization	9,689	8,887	28,137	27,352
Interest expense, net	5,134	6,008	16,245	21,293
Pre-opening costs	2,482	691	5,988	1,918
Non-cash lease expense	(355)	101	(1,532)	(1,117)
Stock-based compensation	799	632	2,575	1,987
Loss on extinguishment of debt				2,082
Foreign exchange (gains) losses	(37)	22	(98)	69
Optimization Plan implementation charges				4,864
Elfa France closure	(1)		402
Other adjustments	(2)	80	(28)	297
Total Adjusted EBITDA	22,007	21,816	55,076	58,554
Operating segments | TCS
Segment reporting
Interest expense, net	5,056	5,957	15,960	21,097
Total Adjusted EBITDA	17,924	19,014	46,820	50,345
Operating segments | Elfa
Segment reporting
Interest expense, net	78	51	285	196
Total Adjusted EBITDA	6,118	4,994	14,155	10,432
lntersegment
Segment reporting
Total Adjusted EBITDA	$ (2,035)	$ (2,192)	$ (5,899)	$ (2,223)

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Net income per common share (Tables)

9 Months Ended

Dec. 28, 2019

Net income per common share

Schedule of reconciliation of net loss and the number of shares used in the basic and diluted net loss per common share calculations:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Numerator:
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Denominator:
Weighted-average common shares — basic		48,313,671		48,139,582		48,987,525		48,139,132
Options and other dilutive securities		56,747		241,873		185,108		268,205
Weighted-average common shares — diluted		48,370,418		48,381,455		49,172,633		48,407,337
Net income per common share — basic and diluted	$	0.05	$	0.19	$	0.04	$	0.12
Antidilutive securities not included:
Stock options outstanding		2,527,745		2,408,068		2,364,692		2,450,246
Nonvested restricted stock awards		310,422		148,310		164,556		29,251

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Description of business and basis of presentation (Details)	Dec. 28, 2019 ft² store state country
Number of stores | store	93
Average size of stores (in square feet)	25,000
Average selling square feet in stores (in square feet)	19,000
Number of states | state	33
Elfa
Number of countries in which products are sold on wholesale basis | country	30

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Leases - Future minimum lease payments (Details) $ in Thousands	Dec. 28, 2019 USD ($)
Operating leases
Within 1 year (remaining)	$ 23,280
2 years	92,567
3 years	79,184
4 years	68,985
5 years	61,050
Thereafter	201,683
Total lease payments	526,749
Less amount representing interest	(143,050)
Total lease liability	383,699
Less current lease liability	(63,163)
Total non-current lease liability	320,536
Amount of minimum lease payments for leases signed but not yet commenced	$ 12,201

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Leases (Details)	Dec. 28, 2019 store
Leases
Number of store locations	93
Minimum
Leases
Expiration term	1 year
Maximum
Leases
Expiration term	20 years

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Net income per common share

9 Months Ended

Dec. 28, 2019

Net income per common share

Net income per common share

4.  Net income per common share

Basic net income per common share is computed as net income divided by the weighted-average number of common shares for the period. Net income per common share – diluted is computed as net income divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of net income per common share – diluted if their effect is anti-dilutive.

The following is a reconciliation of net income and the number of shares used in the basic and diluted net income per common share calculations:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 28,		December 29,		December 28,		December 29,
	2019		2018		2019		2018
Numerator:
Net income	$	2,412	$	9,321	$	1,959	$	5,798
Denominator:
Weighted-average common shares — basic		48,313,671		48,139,582		48,987,525		48,139,132
Options and other dilutive securities		56,747		241,873		185,108		268,205
Weighted-average common shares — diluted		48,370,418		48,381,455		49,172,633		48,407,337
Net income per common share — basic and diluted	$	0.05	$	0.19	$	0.04	$	0.12
Antidilutive securities not included:
Stock options outstanding		2,527,745		2,408,068		2,364,692		2,450,246
Nonvested restricted stock awards		310,422		148,310		164,556		29,251

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Foreign currency forward contracts

9 Months Ended

Dec. 28, 2019

Foreign currency forward contracts.

Foreign currency forward contracts

8.  Foreign currency forward contracts

The Company’s international operations and purchases of inventory products from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. In the TCS segment, we utilize foreign currency forward contracts in Swedish krona to stabilize our retail gross margins and to protect our domestic operations from downward currency exposure by hedging purchases of inventory from our wholly-owned subsidiary, Elfa. Forward contracts in the TCS segment are designated as cash flow hedges, as defined by ASC 815. In the Elfa segment, we utilize foreign currency forward contracts to hedge purchases, primarily of raw materials, that are transacted in currencies other than Swedish krona, which is the functional currency of Elfa. Forward contracts in the Elfa segment are economic hedges and are not designated as cash flow hedges as defined by ASC 815.

During the thirty-nine weeks ended December 28, 2019 and December 29, 2018, the TCS segment used forward contracts for 87% and 97% of inventory purchases in Swedish krona, respectively. Generally, the Company’s foreign currency forward contracts have terms from 1 to 24 months and require the Company to exchange currencies at agreed-upon rates at settlement.

The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its foreign currency forward contracts on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure.

The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. The Company accounts for its foreign currency hedging instruments in the TCS segment as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedging instruments that are considered to be effective, as defined, are recorded in other comprehensive (loss) income until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instrument’s fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency hedge instruments and determined the foreign currency hedge instruments were highly effective during the thirty-nine weeks ended December 28, 2019 and December 29, 2018. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as SG&A on the consolidated statements of operations; however, during the thirty-nine weeks ended December 28, 2019, the Company did not recognize any amount associated with the change in fair value of forward contracts not designated as hedging instruments, as the Company had none of these instruments outstanding.

The Company had a $1,482 loss in accumulated other comprehensive loss related to foreign currency hedge instruments at December 28, 2019, of which $1,040 represents an unrealized loss for settled foreign currency hedge instruments related to inventory on hand as of December 28, 2019. The Company expects the unrealized loss of $1,040, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end customer.

The change in fair value of the Company’s foreign currency hedge instruments that qualify as cash flow hedges and are included in accumulated other comprehensive loss, net of taxes, are presented in Note 7 of these financial statements.

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Consolidated statements of comprehensive income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended		12 Months Ended
	Dec. 28, 2019	Sep. 28, 2019	Jun. 29, 2019	Dec. 29, 2018	Sep. 29, 2018	Jun. 30, 2018	Dec. 28, 2019	Dec. 29, 2018	Mar. 30, 2019
Consolidated statements of comprehensive income
Unrealized gain (loss) on financial instruments, net of tax provision (benefit)	$ 846	$ (981)	$ (18)	$ 216	$ 154	$ (566)	$ (154)	$ (196)
Pension liability adjustment, taxes	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0

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Consolidated balance sheets - USD ($) $ in Thousands	Dec. 28, 2019	Mar. 30, 2019	Dec. 29, 2018
Current assets:
Cash	$ 13,971	$ 7,364	$ 20,969
Accounts receivable, net	29,438	25,568	29,549
Inventory	139,579	108,650	116,006
Prepaid expenses	10,435	10,078	8,877
Income taxes receivable	1,205	1,003	640
Other current assets	11,633	11,705	10,404
Total current assets	206,261	164,368	186,445
Noncurrent assets:
Property and equipment, net	153,515	152,588	151,860
Noncurrent operating lease assets	350,922
Goodwill	202,815	202,815	202,815
Trade names	224,956	225,150	226,996
Deferred financing costs, net	188	241	259
Noncurrent deferred tax assets, net	1,835	1,912	1,898
Other assets	1,790	1,670	1,749
Total noncurrent assets	936,021	584,376	585,577
Total assets	1,142,282	748,744	772,022
Current liabilities:
Accounts payable	56,231	58,734	59,571
Accrued liabilities	67,658	67,163	67,775
Revolving lines of credit		5,511
Current portion of long-term debt	6,953	7,016	7,018
Current operating lease liabilities	63,163
Income taxes payable	2,504	2,851	1,589
Total current liabilities	196,509	141,275	135,953
Noncurrent liabilities:
Long-term debt	298,758	254,960	297,895
Noncurrent operating lease liabilities	320,536
Noncurrent deferred tax liabilities, net	48,363	51,702	50,397
Other long-term liabilities	9,947	36,114	36,339
Total noncurrent liabilities	677,604	342,776	384,631
Total liabilities	874,113	484,051	520,584
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 48,316,559 shares issued at December 28, 2019; 48,142,319 shares issued at March 30, 2019; 48,142,319 shares issued at December 29, 2018	483	481	481
Additional paid-in capital	866,132	863,978	863,119
Accumulated other comprehensive loss	(26,771)	(26,132)	(22,646)
Retained deficit	(571,675)	(573,634)	(589,516)
Total shareholders' equity	268,169	264,693	251,438
Total liabilities and shareholders' equity	$ 1,142,282	$ 748,744	$ 772,022

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Fair value measurements (Details) - USD ($) $ in Thousands	Dec. 28, 2019	Mar. 30, 2019	Dec. 29, 2018
Fair value
Liabilities
Estimated fair value of long-term debt, including current maturities	$ 299,579	$ 274,753	$ 292,961
Recurring
Assets
Total assets	6,249	5,810	5,191
Recurring | Other current assets
Assets
Nonqualified retirement plan	$ 6,249	$ 5,810	5,156
Recurring | Level 2 | Other current assets
Assets
Foreign currency forward contracts			$ 35

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Detail of certain balance sheet accounts (Tables)

9 Months Ended

Dec. 28, 2019

Detail of certain balance sheet accounts

Schedule of detail of certain balance sheet accounts

	December 28,		March 30,		December 29,
	2019		2019		2018
Accounts receivable, net:
Trade receivables, net	$	17,127	$	16,730	$	15,150
Credit card receivables		10,718		7,244		10,407
Other receivables		1,593		1,594		3,992
	$	29,438	$	25,568	$	29,549
Inventory:
Finished goods	$	134,487	$	103,774	$	110,769
Raw materials		4,490		4,282		4,762
Work in progress		602		594		475
	$	139,579	$	108,650	$	116,006
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	22,270	$	19,771	$	21,406
Unearned revenue		13,579		10,744		10,941
Accrued transaction and property tax		12,348		12,249		9,767
Gift cards and store credits outstanding		10,180		8,777		9,562
Accrued lease liabilities		—		4,882		4,793
Accrued interest		1,540		209		1,844
Other accrued liabilities		7,741		10,531		9,462
	$	67,658	$	67,163	$	67,775

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Fair value measurements (Tables)

9 Months Ended

Dec. 28, 2019

Fair value measurements

Schedule of items measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820

			December 28,		March 30,		December 29,
Description		Balance Sheet Location	2019		2019		2018
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,249	$	5,810	$	5,156
Foreign currency forward contracts	Level 2	Other current assets		—		—		35
Total assets			$	6,249	$	5,810	$	5,191

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Detail of certain balance sheet accounts (Details) - USD ($) $ in Thousands	9 Months Ended
	Dec. 28, 2019	Mar. 30, 2019	Dec. 29, 2018
Accounts receivable, net:
Trade receivables, net	$ 17,127	$ 16,730	$ 15,150
Credit card receivables	10,718	7,244	10,407
Other receivables	1,593	1,594	3,992
Accounts receivable, net	29,438	25,568	29,549
Inventory:
Finished goods	134,487	103,774	110,769
Raw materials	4,490	4,282	4,762
Work in progress	602	594	475
Inventory	139,579	108,650	116,006
Accrued Liabilities:
Accrued payroll, benefits and bonuses	22,270	19,771	21,406
Unearned revenue	13,579	10,744	10,941
Accrued transaction and property tax	12,348	12,249	9,767
Gift cards and store credits outstanding	10,180	8,777	9,562
Accrued lease liabilities		4,882	4,793
Accrued interest	1,540	209	1,844
Other accrued liabilities	7,741	10,531	9,462
Accrued liabilities	67,658	$ 67,163	$ 67,775
Revenue recognized included in unearned income	10,382
Revenue recognized included in Gift Cards and Store Credits	$ 2,523

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Segment reporting - (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 28, 2019 USD ($) country	Dec. 29, 2018 USD ($)	Dec. 28, 2019 USD ($) segment country	Dec. 29, 2018 USD ($)	Mar. 30, 2019 USD ($)
Segment reporting
Number of reportable segments | segment			2
Segment reporting
Sales	$ 228,657	$ 221,637	$ 674,609	$ 641,913
Adjusted EBITDA	22,007	21,816	55,076	58,554
Interest expense, net	5,134	6,008	16,245	21,293
Assets	$ 1,142,282	772,022	$ 1,142,282	772,022	$ 748,744
Elfa
Segment reporting
Number of countries in which products are sold on wholesale basis | country	30		30
Operating segments | TCS
Segment reporting
Sales	$ 211,971	204,899	$ 628,282	593,896
Adjusted EBITDA	17,924	19,014	46,820	50,345
Interest expense, net	5,056	5,957	15,960	21,097
Assets	1,049,889	671,865	1,049,889	671,865
Operating segments | Elfa
Segment reporting
Sales	16,686	16,738	46,327	48,017
Adjusted EBITDA	6,118	4,994	14,155	10,432
Interest expense, net	78	51	285	196
Assets	119,321	105,491	119,321	105,491
lntersegment
Segment reporting
Sales	(21,385)	(22,369)	(53,800)	(47,414)
Adjusted EBITDA	(2,035)	(2,192)	(5,899)	(2,223)
Assets	(26,928)	(5,334)	(26,928)	(5,334)
lntersegment | Elfa
Segment reporting
Sales	$ 21,385	$ 22,369	$ 53,800	$ 47,414

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Consolidated statements of cash flows - USD ($) $ in Thousands	9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018
Operating activities
Net income	$ 1,959	$ 5,798
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	28,137	27,352
Stock-based compensation	2,575	1,987
Gain on disposal of assets	(12)	(284)
Loss on extinguishment of debt		2,082
Deferred tax benefit	(5,023)	(3,959)
Non-cash interest	1,396	1,886
Other	187	(35)
Changes in operating assets and liabilities:
Accounts receivable	(4,149)	(4,655)
Inventory	(32,127)	(22,013)
Prepaid expenses and other assets	1,216	4,853
Accounts payable and accrued liabilities	3,630	13,475
Net change in lease assets and liabilities	245
Income taxes	(547)	(3,564)
Other noncurrent liabilities	1,377	(5,100)
Net cash (used in) provided by operating activities	(1,136)	17,823
Investing activities
Additions to property and equipment	(29,296)	(21,328)
Proceeds from sale of property and equipment	12	915
Net cash used in investing activities	(29,284)	(20,413)
Financing activities
Borrowings on revolving lines of credit	51,335	40,256
Payments on revolving lines of credit	(56,700)	(40,256)
Borrowings on long-term debt	65,000	326,500
Payments on long-term debt	(22,512)	(308,251)
Payment of debt issuance costs		(2,384)
Payment of taxes with shares withheld upon restricted stock vesting	(372)	(128)
Net cash provided by financing activities	36,751	15,737
Effect of exchange rate changes on cash	276	(577)
Net increase in cash	6,607	12,570
Cash at beginning of fiscal period	7,364	8,399
Cash at end of fiscal period	13,971	20,969
Supplemental information for non-cash investing and financing activities:
Purchases of property and equipment (included in accounts payable)	$ 970	$ 2,619

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Consolidated balance sheets (Parenthetical) - $ / shares	Dec. 28, 2019	Mar. 30, 2019	Dec. 29, 2018
Consolidated balance sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000	250,000,000
Common stock, shares issued	48,316,559	48,142,319	48,142,319

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Description of business and basis of presentation - Leases (Details) $ in Thousands	9 Months Ended
	Dec. 28, 2019 USD ($)
Recent accounting pronouncements
Practical expedients, package	true
Hindsight practical expedient	false
Operating Lease, Liability	$ 383,699
Operating Lease, Right-of-Use Asset	350,922
ASU 2016-02 | Adjustment
Recent accounting pronouncements
Operating Lease, Liability	352,059
Operating Lease, Right-of-Use Asset	$ 352,059

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Description of business and basis of presentation (Policies)

9 Months Ended

Dec. 28, 2019

Description of business and basis of presentation

Seasonality

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirty-nine weeks ended December 28, 2019 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of Our Annual elfa® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to revise lease accounting guidance. The update requires most leases to be recorded on the balance sheet as a lease liability, with a corresponding right-of-use asset, whereas these leases previously had an off-balance sheet classification. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients; however, the Company did not elect the hindsight practical expedient. Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $352,059 at transition. However, the adoption of this standard did not have a material impact on the consolidated statement of operations or the consolidated statement of cash flows. See Note 3 for further discussion on leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which is intended to improve and simplify hedge accounting and improve the disclosures of hedging arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, the guidance on share-based payments to nonemployees would be aligned with the requirements for share-based payments granted to employees, with certain exceptions. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The Company adopted this standard in the first quarter of fiscal 2019. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In July 2016, the FASB issued ASU 2016-13, Financial Instruments –  Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement are not affected by the new guidance. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

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Accumulated other comprehensive loss (Tables)

9 Months Ended

Dec. 28, 2019

Accumulated other comprehensive loss

Schedule of components of AOCL, net of tax

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at March 30, 2019	$	(967)	$	(1,833)	$	(23,332)	$	(26,132)
Other comprehensive (loss) income before reclassifications, net of tax		(1,425)		12		(136)		(1,549)
Amounts reclassified to earnings, net of tax		910		—		—		910
Net current period other comprehensive (loss) income		(515)		12		(136)		(639)
Balance at December 28, 2019	$	(1,482)	$	(1,821)	$	(23,468)	$	(26,771)

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Net income per common share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Dec. 28, 2019	Sep. 28, 2019	Jun. 29, 2019	Dec. 29, 2018	Sep. 29, 2018	Jun. 30, 2018	Dec. 28, 2019	Dec. 29, 2018
Numerator:
Net income (loss)	$ 2,412	$ 3,646	$ (4,099)	$ 9,321	$ 3,241	$ (6,764)	$ 1,959	$ 5,798
Denominator:
Weighted-average common shares - basic (in shares)	48,313,671			48,139,582			48,987,525	48,139,132
Options and other dilutive securities	56,747			241,873			185,108	268,205
Weighted Average Number of Shares Outstanding, Diluted, Total	48,370,418			48,381,455			49,172,633	48,407,337
Net income per common share—basic and diluted	$ 0.05			$ 0.19			$ 0.04	$ 0.12
Stock options outstanding
Antidilutive securities not included:
Antidilutive securities	2,527,745			2,408,068			2,364,692	2,450,246
Nonvested restricted stock awards
Antidilutive securities not included:
Antidilutive securities	310,422			148,310			164,556	29,251

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Components of lease costs (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 28, 2019	Dec. 28, 2019
Lease costs
Operating lease costs	$ 22,842	$ 67,840
Variable lease costs	270	903
Total lease costs	$ 23,112	$ 68,743

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Foreign currency forward contracts (Details) - USD ($) $ in Thousands	9 Months Ended
	Dec. 28, 2019	Dec. 29, 2018
Purchase of inventory from use of forward contracts in Swedish krona (as a percent)	87.00%	97.00%
Foreign currency forward contracts | Not Designated as Hedging Instrument
Loss associated with forward contracts not designated as hedge instruments	$ 0
Foreign currency hedge instruments | Designated as Hedging Instrument | Cash Flow Hedging
Unrealized loss for settled foreign currency hedge instruments	(1,040)
Unrealized loss to be reclassified into earnings over the next 12 months	(1,040)
Loss in accumulated other comprehensive loss related to foreign currency hedge instruments	$ (1,482)
Minimum | Foreign currency forward contracts
Term of contract	1 month	1 month
Maximum | Foreign currency forward contracts
Term of contract	24 months	24 months

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Leases

9 Months Ended

Dec. 28, 2019

Leases

Leases

3. Leases

We conduct all of our U.S. operations from leased facilities that include corporate headquarters, warehouse facilities, and 93 store locations. The corporate headquarters, warehouse facilities, and stores are under operating leases that generally expire over the next 1 to 20 years. We also lease computer hardware under operating leases that generally expire over the next few years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company also has finance leases at our Elfa segment which are immaterial.

Lease expense on operating leases is recorded on a straight‑line basis over the term of the lease, commencing on the date the Company takes possession of the leased property and is recorded in selling, general and administrative expenses (“SG&A”).

We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable lease payments include lease payments that are based on a percentage of sales.

Upon lease commencement, we recognize the lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate applied to present value the future lease payments and the exercise of renewal options.

Many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.

Discount Rate

Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.

The components of lease costs for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Operating lease costs	$	22,842	$	67,840
Variable lease costs		270		903
Total lease costs	$	23,112	$	68,743

We do not have sublease income and do not recognize lease assets or liabilities for short-term leases, defined as operating leases with initial terms of less than 12 months. Our short-term lease costs were not material for the thirty-nine weeks ended December 28, 2019.

Supplemental cash flow information related to our leases for the thirteen and thirty-nine weeks ended December 28, 2019 were as follows:

		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
Cash paid for amounts included in the measurement of operating lease liabilities	$	22,800	$	67,321
Additions to right-of-use assets	$	2,842	$	41,976

Weighted average remaining operating lease term and incremental borrowing rate as of December 28, 2019 were as follows:

Weighted average remaining lease term (years)	7.2
Weighted average incremental borrowing rate	8.8	%

As of December 28, 2019, future minimum lease payments under our operating lease liabilities were as follows:

	Operating leases (1)
Within 1 year (remaining)	$	23,280
2 years		92,567
3 years		79,184
4 years		68,985
5 years		61,050
Thereafter		201,683
Total lease payments	$	526,749
Less amount representing interest		(143,050)
Total lease liability	$	383,699
Less current lease liability		(63,163)
Total noncurrent lease liability	$	320,536

(1) Operating lease payments exclude $12,201 of legally binding minimum lease payments for leases signed but not yet commenced.

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Accumulated other comprehensive loss

9 Months Ended

Dec. 28, 2019

Accumulated other comprehensive loss

Accumulated other comprehensive loss

7.  Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirty-nine weeks ended December 28, 2019:

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at March 30, 2019	$	(967)	$	(1,833)	$	(23,332)	$	(26,132)
Other comprehensive (loss) income before reclassifications, net of tax		(1,425)		12		(136)		(1,549)
Amounts reclassified to earnings, net of tax		910		—		—		910
Net current period other comprehensive (loss) income		(515)		12		(136)		(639)
Balance at December 28, 2019	$	(1,482)	$	(1,821)	$	(23,468)	$	(26,771)

Amounts reclassified from AOCL to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Company’s consolidated statements of operations. For a description of the Company’s use of foreign currency forward contracts, refer to Note 8.